Seoul, South Korea – Early this year, South Korea’s stock market surged, fueled by the rapid growth of artificial intelligence (AI) in the semiconductor industry. However, this positive momentum has been overshadowed by a significant downturn impacting South Korea’s rookie investors, particularly those whose fortunes vanished as quickly as they rose. Eun-bi, a civil servant in her thirties, withdrew a substantial portion of her savings, primarily invested in several of the market’s most prominent stocks, chief among them SK Hynix and a United States-listed fund tracking the semiconductor sector. Eun-bi, hoping to raise funds for her wedding in April next year, purchased several of these market stars, anticipating a substantial return. But when the KOSPI index plummeted nearly 40 percent from its June peak, Eun-bi’s portfolio experienced a staggering loss of tens of thousands of dollars, throwing her wedding plans into doubt. “Now I’m wondering if I should scale down the ceremony or skip the honeymoon,” Eun-bi told Al Jazeera, reflecting the widespread anxiety among Korean investors. Eun-bi is among the millions of South Koreans who invested enthusiastically during the largest stock market rally in the country’s history, making significant gains only to see much of their profits evaporate just as quickly. The rapid swings have prompted intense scrutiny of the Lee administration’s efforts to make the market more accessible to investors, notably through the approval of riskier leveraged investment products. Furthermore, analysts suggest that the government’s decision to authorize the sale of exchange-traded funds (ETFs) tracking twice the daily movement of Samsung and SK Hynix shares represents a policy failure, compounded by the government’s decision to approve domestic single-stock leveraged ETFs. At the same time, the KOSPI doubled in the first six months of this year, rising 101.14 percent by the end of June on the back of surging demand for memory chips produced by Samsung Electronics and SK Hynix. The index cleared 5,000 points in January and 8,000 in May, reaching an intraday peak of 9,385.59 on June 19. By July 30, the index reversed most of its gains and was back below 5,595 points. Heavy borrowing has further exacerbated the losses, with margin loans used to fund stock purchases standing at 28.9 trillion won ($20.7bn) at the end of July, falling from their June peak of 38.6 trillion won ($27.6bn) as brokerages liquidated the holdings of investors who could not cover their losses, according to the Korea Financial Investment Association. The government’s introduction of single-stock leveraged ETFs of the two stocks that were ‘already sitting in nearly every Korean portfolio’ – Samsung Electronics and SK Hynix – created a sense of familiarity that clouded investors’ judgement, leading to risk-taking. The KOSPI is now up about 50 percent since the start of the year, but remains highly volatile. The KOSPI dived nearly 6 percent on Wednesday, following a 1.55 percent drop the previous day. The index is up about 30 percent since the start of the year but 30 percent below its all-time high. The wild swings have prompted scrutiny of the Lee administration’s efforts to jumpstart South Korea’s long-neglected market, a campaign promise included a commitment to lift the KOSPI to 5,000 points. Lee’s popularity has taken a tumble amid the market turbulence. President Lee’s approval rating has fallen for five consecutive weeks, reaching 43 percent in a Realmeter survey conducted August 10-14 – the lowest of his presidency. Among a range of factors, including criminal procedure reforms and a proposed property tax hike on wealthy homeowners, the pollster attributed the slide to the sharp fall in the stock market and controversies over the government’s decision to approve domestic single-stock leveraged ETFs. Lee’s efforts to jumpstart South Korea’s long-neglected market – his campaign pledges included a commitment to lift the KOSPI to 5,000 points – have also become a target for his political rivals. “The government’s introduction of single-stock leveraged ETFs is a clear policy failure,” wrote Cho Kuk, a former justice minister who left Lee’s Democratic Party to found the minor Rebuilding Korea Party, in a Facebook post on August 5. “Young people who invested trusting the government’s intent were caught in a leverage trap the government itself laid, and are left with debt and trauma they may never shake off. And well, it happened. The stock market must not become a casino,” he added. “Politicians rightly or wrongly are often blamed for fluctuations in the market,” Benjamin Engel, an assistant professor and expert in Korean politics at Dankook University in Yongin, told Al Jazeera. “People seemed to be over-leveraging themselves by taking out loans to invest, and they were going to get into financial trouble when the inevitable decline in the market happened. And well, it happened. The government’s introduction of single-stock leveraged ETFs is a clear policy failure,” Engel said.” Eun-bi, the civil servant, said she had not bought any domestic leveraged products herself – but only because she had run out of money to do so. Even so, she does not blame the government for the losses she and her peers suffered. “Personally, I don’t think the president or the government bears responsibility for having encouraged stock investment,” she said. “There are plenty of leveraged products overseas too, so I think once the short-term overheating of the KOSPI passes, the domestic market will probably function normally again.” Still, Eun-bi’s experience has made her rethink her approach to investing. “Because I took such heavy losses from this fall in semiconductor share prices, I’ve come to think that from now on I should diversify across a range of fields and sectors,” she said. “I want to watch how things go through the second half of this year and the first half of next year, and then convert everything back into cash before the wedding.”
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Source: Al Jazeera
