Summary of Key Points
In the past month, the South Korean stock market has experienced a rollercoaster ride: from investors breaking through the 9,000-point mark and panic-buying due to FOMO (Fear Of Missing Out) to a sharp decline of over 33%, with those who didn’t buy feeling relieved (JOMO – Joy Of Not Buying), while those who did are crying out for “state compensation” due to massive losses. Leverage ETFs have become a “meat grinder” for retail investors, with each additional investment only leading to deeper losses; regulatory authorities have been criticized for their failure to approve leverage products properly; market opinions are clearly divided—with some institutions seeing this as an opportunity to buy at rock bottoms and others being bearish.
Detailed Analysis
1. Retail Investor Sentiment: A 180-Degree Turn from “FOMO” to “JOMO”
The South Korean stock market soared in the first half of the year, with leading semiconductor companies like Samsung and SK Hynix driving the gains. Stories of people making a fortune through trading were widespread, causing those who hadn’t entered the market to feel anxious (FOMO). However, in just one month, the market plummeted, and online forums were filled with posts expressing relief for not having invested. For example, a 25-year-old who used to envy his friend’s desire for a luxury car (a Hyundai Genesis) now says he’ll never trade stocks again after hearing that his friend can’t even afford a used one.
Essentially, both FOMO and JOMO are examples of hindsight bias—regretting not buying when prices are rising and feeling relieved when they fall, which are emotional reactions to the outcome.
2. The Severity of the Drop
- Record-Cutting Volatility: The KOSPI (South Korean Composite Index) tumbled from a high of 9,063 to below 6,000, a decrease of over 33%, with a single-day drop of 10.76% (the largest since 1998).
- Frequent Circuit Breakers: The KOSPI has triggered 8 circuit breakers this year, more than half of the total 14 in history, resulting in market halts for several weeks each time.
- Leading Stocks Hit Hard: Samsung Electronics fell by 31%, and SK Hynix by 38%. Among Samsung’s 870,000 investors, 42% lost money, while SK Hynix’s investors fared even worse with 57% in losses.
- Comparison to the US Market: In the same period, the S&P 500 in the US only fell by 0.39%, making South Korean stocks the worst-performing major market globally.
3. Leverage ETFs: A “Meat Grinder” for Retail Investors
What are leverage ETFs? Simply put, they are products that amplify price movements. For example, a 2x leverage ETF means you can earn 20% if the stock rises 10%, but lose 20% if it falls 10%. South Korean retail investors particularly favored leveraged ETFs on individual stocks like Samsung and SK Hynix, which led to devastating losses:
- Kim (45 years old): Starting with 7 million won, he increased his investment five times to 34 million won but is now at a 50% loss and can neither sell nor buy more.
- Choi (25 years old): Using 8 million won from part-time work and borrowing money for living expenses to invest, he’s left with only half of his original capital.
- Even a Trading Champion (a Chinese cuisine chef) Failed: Starting with 120 million won, he’s now down 61% to just 46 million won.
Why do losses worsen with additional investments? Because when leveraged ETFs decline, the losses are amplified, and adding more money only accelerates the loss.
4. Regulatory Failure?
The head of the South Korean Financial Supervisory Service admitted that they should have done more to prevent the approval of leverage products, suggesting a failure in regulatory oversight. Investors believe the authorities approved these products without properly assessing the risks, leading to widespread losses and calling for state compensation. Some are even advocating for a congressional investigation into the approval process.
5. Divided Market Opinions: A Trap or an Opportunity?
While retail investors are in despair, institutional views vary:
- Buyers on the Downside: Some analysts believe that extreme pessimism could be a signal to buy at rock bottoms, as everyone might have sold already, and a small positive event could trigger a rebound.
- Long-Term Optimists: DS Securities raised its target price for the KOSPI for the second half of the year to 9,000 points, arguing that even if semiconductor profits decline by 30%, the market is still undervalued. Morgan Stanley predicts a 25% increase in memory prices in the third quarter, seeing this as an opportunity to buy.
- Concerns: Retail investor funds are leaving the market—31 trillion won have been withdrawn from brokerage accounts (the lowest level in five months), and trading volumes have decreased by 33%. If investors only think about selling to lock in profits during a rebound, it will be difficult for the index to recover.
Conclusion
The recent crash serves as a reminder that leveraged products are double-edged swords: profitable when markets rise but painful when they fall. Following trends (FOMO) can lead to costly mistakes, and products with inadequate regulation should be avoided. As for whether now is the right time to buy at rock bottoms, it depends on whether you’re a long-term investor prepared to withstand market fluctuations or a retail investor worried about losses. After all, institutions focus on the future, while individuals are more concerned about their immediate financial situation.
(End of Article)