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

Mars Finance news: On July 29, the head of the policy office of the Blue House in South Korea, Kim Yong-beom, systematically responded to the causes of the recent plunge in the KOSPI index. He said the current market is going through internal debate about AI investment—on one hand, doubts have arisen about the commercial sustainability of large-scale capital expenditures by major technology firms: “Semiconductor supply continues to increase, but there is no certainty about whether future demand will be able to continuously absorb it.” On the other hand, China’s accelerated catch-up in the semiconductor industry has brought new competitive pressure; news such as Changxin going public and breakthroughs in China’s lithography equipment manufacturing technology have led the market to re-examine whether South Korea’s competitive gap in memory chips remains solid. However, Kim Yong-beom clearly emphasized that AI demand is not temporary: “Demand will remain steady and sustained.” He believes South Korea should seize this opportunity to accelerate factory construction, invest in a timely manner, and strengthen R&D spending.

Regarding the causes of amplified volatility in South Korea’s domestic market, Kim Yong-beom stated explicitly that leveraged ETFs are not the only answer. The combined effect of factors such as the market structure—where semiconductor and AI-related stocks account for as much as 40% to 50%—the high weighting of derivatives and ETFs, and the composition of investors, has jointly led to volatility being significantly higher than in overseas markets. While leveraged ETFs may cause temporary market shocks during end-of-day portfolio rebalancing, in some cases volatility shows up as early as the morning; the time distribution alone can exclude leveraged ETFs as the sole 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.