South Korea’s government believes the main reason for KOSPI’s plunge is AI investment doubts and competition from China’s semiconductor industry. Leveraged ETFs are only one of several factors that amplify market volatility, and the market structure needs to be comprehensively reviewed.

1. Kim Yong-beom, head of the policy office in the presidential office, said the market has concerns about the business sustainability of large-scale capital expenditures by major technology firms, believing that “semiconductor supply continues to increase, but there is no certainty that future demand can always absorb it.”
2. News that China’s semiconductor industry is accelerating its catch-up—such as the listing of CXMT (Changxin Memory) and breakthroughs in China’s lithography equipment manufacturing technology—has prompted the market to re-evaluate whether South Korea’s competitive gap in memory chips remains firmly secure.
3. Kim Yong-beom stressed clearly that AI demand is not temporary: “Demand will be steady and sustained.” He suggested that South Korea seize this opportunity to accelerate factory construction, make timely investments, and strengthen R&D spending.
4. South Korea’s semiconductors and AI-related stocks account for as much as 40% to 50%. Combined with high exposure to derivatives and ETFs and the composition of investors, these factors have led to volatility significantly higher than that of overseas markets.
5. Kim Yong-beom said leveraged ETFs are not the sole driving factor, because end-of-day rebalancing may cause temporary shocks, but “sometimes volatility appears by morning.” He argued that the time distribution alone cannot rule out its single-driver role.
6. Kim Yong-beom advised South Korea’s Financial Services Commission to conduct a comprehensive review of the overall capital-market structure, including leveraged ETFs.