South Korea’s presidential office: Calls for a comprehensive review of South Korea’s capital markets, including leveraged ETFs

BlockBeats, July 29—Korea’s presidential office policy chief Kim Yong-beom systematically responded to the causes of the recent sharp drop in the KOSPI index. He said the current market is undergoing internal debate over AI investment—on the one hand, raising doubts about the business sustainability of large-scale capital expenditures by major technology companies: “While semiconductor supply continues to increase, there is no certainty that future demand can always absorb it.” On the other hand, the accelerated catch-up of China’s semiconductor industry has created new competitive pressure; news such as the listing of Zhanxin and breakthroughs in China’s lithography equipment manufacturing technology have led the market to re-examine whether South Korea’s competitive gap in storage chips remains solid. However, Kim Yong-beom emphasized clearly that AI demand is not temporary—“Demand will remain steady and sustained.” He believes Korea should seize this opportunity to accelerate factory construction, invest in a timely manner, and strengthen R&D spending.

Regarding the causes of intensified domestic market fluctuations in South Korea, Kim Yong-beom stated explicitly that leveraged ETFs are not the only answer. Factors such as the market structure—where stocks related to South Korea’s semiconductors and AI account for as much as 40% to 50%—the high share of derivatives and ETFs, and investor composition all combine to make volatility significantly higher than overseas markets. Although leveraged ETFs may cause temporary shock to the market during end-of-day portfolio rebalancing, sometimes volatility appears as early as the morning; therefore, the time distribution alone can rule out leveraged ETFs as a single driving factor. Kim Yong-beom suggested that South Korea’s Financial Services Commission conduct a comprehensive review of the overall capital market structure, including leveraged ETFs.