South Korea’s Regulators Accidentally Triggered a 30% Small-Cap Rally

South Korea's financial regulators wanted to calm a volatile stock market as they cracked down on leveraged ETFs. However, they have made it more chaotic instead.

Crackdowns on leveraged ETFs tied to Samsung Electronics and SK Hynix, which required retail investors to post higher cash deposits, did not cool speculation. Retail money rotated en masse into Kosdaq small caps, which have now surged 30% from their July 30 low.

How Restricting Chip ETFs Sparked a Kosdaq Surge

The Kosdaq index jumped 6.8% on Monday alone, enough to trigger a Korea Exchange program trading halt for the third time this month.

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

An AI-driven selloff had already sent the Kospi plunging nearly 40% from its June peak to a late-July low, triggering forced liquidations and unwinding billions in margin loans. BeInCrypto reported that the SK Hynix leveraged ETF collapsed 45%, with regulators admitting the products had amplified market swings.

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