KOSPI crash wipes 460,000 retail accounts as leveraged ETF unwind deepens

The KOSPI has fallen 40 percent from its June peak to 5,663, wiping out 460,000 retail accounts as leveraged ETF unwinds triggered forced selling.

"We are seeing more money flow to Kosdaq, particularly today," said Park Wooyeol, global ETF analyst at Shinhan Securities. "Volatility-loving retail investors who have moved to the single-stock leveraged ETFs are expected to make a comeback to the Kosdaq."

The slide from 9,385 to 5,663 erased a 116 percent first-half gain that had made Seoul the world's best-performing major market. Citi analysts estimate retail losses on leveraged ETFs at 56.3 trillion won ($38.7 billion), with 1.2 million accounts hitting margin calls. Samsung Electronics fell 13 percent and SK Hynix 14 percent on July 28, when the index dropped more than 10 percent and tripped a circuit breaker for a second straight session.

The unwind has pushed speculative money into the Kosdaq, which has surged 30 percent from its July 30 low and jumped 6.8 percent on Monday, triggering a program-trading halt for the third time this month. The small-cap gauge is on track to outperform the KOSPI by its widest margin since 2000, even as President Lee Jae-myung presses an 800 trillion won semiconductor build-out.

Leveraged ETFs Became a Liquidation Machine

To maintain two-times leverage, funds mechanically sold into declines, accelerating the slide. The SK Hynix leveraged ETF collapsed 45 percent, and regulators admitted the products had widened market swings. When authorities then raised cash deposit requirements on chip-linked leveraged ETFs, they did not anticipate where the speculative energy would flow next. The Bank of Korea added to the pressure by raising rates 25 basis points on July 16, the day the index broke below 6,800 into a technical bear market.

Kosdaq Divergence Widest Since 2000

Retail money rotated en masse into Kosdaq small caps. The gauge's 30 percent rebound from its July 30 low marks the widest divergence from the KOSPI since the dot-com era. Park said the same cohort that drove the chip ETF boom now dominates small-cap trading. The move has been so violent that Bitcoin posted lower volatility than the KOSPI at the height of the selloff, according to BeInCrypto.

The human toll is concentrated among the young: 62 percent of liquidated accounts belonged to investors aged 20 to 30, and roughly 360,000 accounts were force-closed with principal wiped out. Lee's bet — relocating a military airport to free land for chip plants and doubling DRAM capacity within five years — is a wager on the next two decades. But for the retail cohort that rode the index to 9,385, the immediate question is whether the Kosdaq rally has genuine legs or is just the next venue for the same speculative cycle.

This article is for informational purposes only and does not constitute investment advice.