The index rebounded, but behind the scenes, retail investors made one last push just three days before new rules take effect
The KOSPI, which plunged 5.72% last Friday, rebounded today (the 27th) to close at 6,755.75, lifted by combined buying from individual investors and institutions. Hopes around Korea-US semiconductor cooperation pushed the index higher, but foreign investors sold more than 3 trillion won worth of shares, a starkly different reaction. Behind all of this lies a specific driver: individual investors rushing in for one last round of bargain-hunting ahead of new single-stock leveraged ETF regulations set to take effect on the 31st. Today we walk through the day’s KOSPI action, along with the hidden risk retail investors are diving into with these leveraged products.
Down to 6,557 After the Open, Then a Rebound to 6,755.75
The KOSPI opened sharply higher, up 115.65 points (1.73%) at 6,806.27. But it gradually gave back those gains, hovering flat before turning negative in the afternoon, at one point falling as low as 6,557.39 (-1.99%). It then reversed higher again, ultimately closing up 65.13 points (0.97%) at 6,755.75. The gap between the day’s high and low reached 248.88 points, a volatile session by any measure. The KOSDAQ rose in tandem, up 16.64 points to 764.86. Trading volume on the KOSPI came in at 270.91 million shares, with turnover reaching 23.5046 trillion won.
The Backdrop: Korea-US Chip Cooperation, and a Divided Foreign Response
Today’s strong open was driven by news of Korea-US semiconductor cooperation that emerged over the weekend. Coinciding with President Lee Jae-myung’s visit to the US, major companies from both countries unveiled large-scale chip cooperation plans. Samsung Electronics agreed to a five-year, $200 billion (roughly 292.6 trillion won) deal with Broadcom running through 2030, covering advanced memory supply and AI chip foundry cooperation. Samsung Electronics Chairman Lee Jae-yong also met with OpenAI CEO Sam Altman to discuss AI and semiconductor collaboration. Adding to the favorable backdrop, a lull in the US-Iran military standoff sent both oil prices and US Treasury yields lower.
Foreign investors, however, undercut this positive news with heavy selling. Having built up nearly 2 trillion won in net buying last week and fueling hopes of a renewed “buy Korea” trend, foreign investors flipped to net selling from the early session onward, ultimately selling a net 3.0858 trillion won. Behind this lies the fallout from a 4.3% plunge in the Philadelphia Semiconductor Index on July 24 (US time). Intel fell 7.9% despite posting better-than-expected earnings, weighed down by doubts over its ability to secure future foundry customers, while Broadcom, AMD, and Micron all declined in sympathy. In other words, AI valuation concerns around Korea’s large-cap chip names remain unresolved. Individual investors (net buying 2.2202 trillion won) and institutions (net buying 826.7 billion won) absorbed this selling and helped support the index.
“After the 31st, You Can’t Buy In” — Retail Investors Flock to Leveraged ETFs
One reason individual net buying was so pronounced was a rush to get ahead of tightening regulations on single-stock leveraged ETFs. The minimum cash deposit requirement for these products, originally set to rise to 30 million won on August 5, was moved up to July 31, prompting individual investors to treat this as a “last chance to buy the dip before the rules change.” According to the Korea Exchange and Koscom, on July 24 alone (“Black Friday,” when Samsung Electronics fell 7.59% and SK hynix fell 8.34%), individual investors net bought a combined 453.8 billion won across 14 single-stock leveraged ETFs tracking the two chipmakers in a single day. That amount recovered most of the net selling (547.1 billion won) recorded over the prior three sessions (the 21st-23rd). By product, 350 billion won flowed into the seven SK hynix leveraged ETFs, and 103.8 billion won into the seven Samsung Electronics leveraged ETFs.
But Is It Actually a Good Idea? The Hidden Trap of “Volatility Drag”
There’s a crucial concept every investor should understand here: volatility drag. Single-stock leveraged ETFs are designed to track twice the daily return of their underlying asset, which means that as a stock swings up and down repeatedly, the ETF’s principal erodes steadily, a structural feature of how these products work. According to the Korea Exchange, from the leveraged ETFs’ listing in late May through July 15, SK hynix shares fell 7.18%, but the average return on ETFs tracking it was -34.06%, roughly five times the loss of the underlying stock. Samsung Electronics showed a similar pattern: shares fell 8.96% over the same period, while the seven related leveraged ETFs averaged a -30.66% return.
| Stock | Underlying Return (Late May-Jul 15) | Avg. Leveraged ETF Return | Loss Multiple |
| SK hynix | -7.18% | -34.06% | ~5x |
| Samsung Electronics | -8.96% | -30.66% | ~3.4x |
In other words, even if a stock eventually recovers, repeated ups and downs along the way can leave leveraged ETF holders with far steeper losses. This volatility drag effect becomes especially pronounced in a rollercoaster market like the current one, where the index can plunge more than 5% one day and rebound the next.
Investor Takeaways and Expert Views
⚠️ Things Investors Should Watch
- Be wary of “last chance before the rules change” thinking: The fact that regulators are tightening rules is itself a signal that a product carries significant risk. The urgency of “buy now or miss out” can cloud sound judgment.
- Leveraged ETFs aren’t built for long-term holding: Because of volatility drag, holding these products through volatile stretches can produce far steeper losses than the underlying stock itself. As a general rule, they’re best used only briefly, for short-term directional bets.
- Note the gap between foreign and domestic sentiment: Foreign investors sold more than 3 trillion won today despite the positive news. That’s a sign that foreign and domestic investors still see Korean chip valuations quite differently.
- This week’s earnings are the next key test: Samsung Electronics’ and SK hynix’s second-quarter results and second-half outlooks will be a key gauge of whether the AI investment cycle is holding up. With major US Big Tech earnings and the FOMC decision also landing this week, volatility could pick up further.
📌 What Experts Are Saying
- Financial industry observers: Some analysts argue that this month’s sharp KOSPI declines owe less to any deterioration in the semiconductor industry itself and more to elevated market expectations, deleveraging among leading stocks, and rebalancing flows tied to single-stock leveraged ETFs, all compounding at once. Indeed, last week (July 20-24) the KOSPI rose 4.1% while the KOSDAQ fell 0.2%, a clear divergence between large-cap and smaller names.
- Analysis based on Korea Exchange data: Given that volatility drag on single-stock leveraged ETFs has run three to five times the underlying stock’s decline, the prevailing view is that tighter regulation was a necessary step for investor protection.
Taken together, today’s session reflected a tight tug-of-war between positive news on Korea-US chip cooperation and lingering AI valuation concerns. Retail buying ahead of the leveraged ETF rule change helped prop up the index, but it’s worth remembering that the volatility drag risk embedded in these products remains substantial. This week’s Samsung Electronics and SK hynix earnings, along with US Big Tech results and the FOMC decision, will likely determine which side of this delicate balance wins out.
Sources
- Money Today — “KOSPI Rebounds to Close at 6,755.75… Individuals and Institutions in ‘Combined Buying’” (mt.co.kr)
- Hankyung — “KOSPI Fluctuates Throughout the Session, Closes Up 0.97% at 6,755.75” (hankyung.com)
- WikiTree — “KOSPI Closes at 6,755.75… Which Sector Fell Alone as Large Caps Rose?” (wikitree.co.kr)
- Getnews — “KOSPI Fluctuates, Closes Up 0.97%… Recovers 6,700 Level” (getnews.co.kr)
- Namdo Ilbo — “[Market Recap] ‘Rollercoaster’ Semiconductor Stocks… Samsung Electronics, SK hynix Close Higher” (namdonews.com)
- Financial News — “‘You Can’t Buy After the 31st’… Retail Investors Bet Big Amid Samsung Electronics, SK hynix Plunge” (fnnews.com)
- EBN News Center — “SK hynix Down 7%, Its Leverage ETF Down 34%… Retail Investors Caught in ‘Volatility Drag’ Trap” (ebn.co.kr)
- Newspim — “[Market Close] KOSPI Recovers 6,750 Level… Up 1% on Institutional, Individual Buying” (newspim.com)