South Korean stock market has been soaring recently. What remains now is not only the huge losses suffered by investors, but also the psychological problems caused by this situation.
According to Reuters report on August 21, since reaching a high on June 19, the Korea Composite Stock Index (KOSPI) has fallen by about 30%. The stock market frenzy that swept Korea quickly turned from frenzied enthusiasm into decline, and the huge losses caused by leveraged trading have even begun to cause psychological and social problems.
Last year, after taking office, South Korean President Li Zemin proposed to eliminate the long-standing "South Korean discount" and promote capital market reforms. In May of this year, South Korean regulatory authorities further allowed the listing of leveraged ETFs for individual stocks, aiming to enrich financial products. However, these new regulations coincided with an artificial intelligence boom that caused the stock prices of Samsung Electronics and SK Hynix to soar. As a result, many retail investors borrowed money to enter the market, hoping to capture this wave of prosperity.
The scale of financing purchases in South Korea increased by approximately 75% from the beginning of the year to late June. On June 24th, it reached a record high of 29.8 trillion Korean won.
At the age of 34, investor Kwon Sun-guk told Reuters that, against the backdrop of widening wealth gaps, even with significant risks involved, leveraged and financing transactions seem to be one of the few ways for ordinary people to “climb the broken ladder”. He achieved a profit of 66% during the peak of the market.
But leverage also magnified the decline. As the market tumbled in July, the South Korean stock market volatility index VKOSPI reached a peak of 97.99, the highest level since statistics began in 2009. According to Citibank estimates, as of the end of July, individual investors in South Korea suffered losses of up to $38.7 billion solely due to leveraged ETFs.
The market slump is also affecting investors' psychology. A psychiatrist in Seoul who specializes in treating psychological issues related to stock investing said that last year, he treated about 7 to 8 people per day, and since June this year, the number has increased to an average of 11 people per day. The Busan police also arrested a man in his 20s for allegedly attacking a YouTube blogger who was accused of causing him losses in investments.
A South Korean investment blogger named Won Si-jae, who has 3.7 million subscribers, said that many investors may suffer from psychological trauma due to huge losses, "completely losing interest in investing."
The South Korean government has apologized for the controversy caused by the launch of leveraged ETFs for individual stocks, and has tightened the relevant investment restrictions. However, this sharp volatility has cast a shadow over South Korea's goal of bringing the KOSPI into the MSCI Developed Market Index. Dalbo Park, an 80-year-old retired investor who has been trading stocks for 30 years, has lost 35% due to this decline. He said, "I have never experienced anything like this before, and I don’t think I will invest in KOSPI anymore."
