On May 27 this year, South Korean financial authorities approved the country's first batch of single-stock leveraged ETFs, launching 16 products linked to Samsung Electronics and SK Hynix. Such products have daily price movements twice that of the underlying stock, and to maintain the target leverage ratio, they buy when the stock price rises and sell when it falls—essentially exhibiting pro-cyclical characteristics.

The products became an instant hit upon launch. Wall Street Insights noted that 14 leveraged ETFs recorded a combined trading volume of 212 trillion Korean won (approximately $138.6 billion) in June alone, accounting for 26.6% of total ETF trading volume during the period.

The Bank of Korea (BOK) issued a warning on Sunday in a written reply to opposition lawmaker Park Sung-hoon, stating that these leveraged ETFs "may intensify one-sided trading behavior, further exacerbating market volatility when investors rush in or out; if stock prices drop sharply, ETF redemptions and portfolio rebalancing could amplify retail investors' losses and trigger broader market turmoil."

This stance is notably stronger than the language in the BOK's June 24 financial stability report, which at the time considered such products "helpful in providing domestic alternatives, curbing capital outflows, and attracting foreign capital inflows to South Korea."

Lee Chan-jin, head of the Financial Supervisory Service, had already stated publicly on June 22: "We moved too hastily at the time. Looking back, I regret approving these products—perhaps I should have done everything I could to prevent their approval."

Historical patterns serve as a warning: during the bear markets of 2017 and 2021, when South Korean stocks peaked and declined, the scale of leveraged ETFs actually rose against the trend, closely resembling the current trend.