After the Kospi's steep July slide, critics say that the Lee Jae Myung administration must answer for risky exchange-traded fund (ETF) policies and mixed signals that deepened losses for retail investors.
A display board in the trading room of Hana Bank's headquarters in central Seoul shows the Kospi closing at 5,593.56 on July 30, down 69.68 points, or 1.23 percent, from the previous session. The Kosdaq also fell 17.9 points, or 2.7 percent, to 644.78. Korea's stock market has continued its sharp decline throughout July, marking one of the steepest monthly sell-offs in recent years.NEWS1
Park Su-ryon
The author is the deputy editor of Content Division Three and the head of corporate research at the JoongAng Ilbo.
The past week has been dominated by fear. Korea’s stock market has suffered daily plunges reminiscent of the panic that began with Wall Street’s Black Thursday on Oct. 24, 1929, when the Dow Jones Industrial Average fell 12.4 percent. It took barely a month for the Kospi to tumble from its closing peak of 9,114.55 on June 22 to the 5,600 range. No one yet knows how long the shock will weigh on the economy or whether millions of retail investors can withstand the losses.
Was the collapse caused by slowing AI investment among global technology companies or by China’s rapid advances in semiconductors? Those factors played a role, but they were hardly unexpected. Excluding external forces beyond Korea’s control, many domestic and overseas market analysts have identified another primary trigger: the introduction of double-leveraged exchange-traded funds (ETF) tracking only Samsung Electronics and SK hynix. Because the two chipmakers account for more than half of the Kospi’s market capitalization, critics argue that the government bears responsibility for allowing highly speculative products into such a concentrated market.
Officials responsible for policies that helped create such turmoil should devote themselves to containing the damage. Instead, remarks made in Brazil on Monday drew widespread criticism. Kim Yong-beom, the presidential chief of staff for policy who accompanied President Lee Jae Myung on the state visit, said that the characteristics of Korea’s stock market amplified the market’s volatility. He added that leveraged ETFs may have made the swings appear more pronounced, but they were not necessarily the sole cause. He then suggested that it was time to examine the country’s derivatives market, the large number of retail investors and investor composition.
Those comments sounded less like an acknowledgment of responsibility than an attempt to shift blame onto retail investors while diluting the government’s role by emphasizing external factors. They were particularly striking because Kim has been identified as a leading advocate of permitting the controversial leveraged products. Saying that officials should “now” begin examining the issue only deepened public frustration.
Kim has generated controversy on several occasions. Late last month, he appeared on political commentator Kim Eo-jun’s YouTube channel, during which he declared that the Kospi, already among the world’s five largest stock markets, could rank among the top three within two or three years. He even invited viewers to “make a bet.” Millions of retail investors were effectively turned into participants in that wager. Earlier social media posts describing “structural excess returns” and “numbers that hardly seem real” also sparked criticism. Public communication may be part of policymaking, but an adviser entrusted with broad authority also bears broad responsibility.
The market collapse of July is likely to become one of the defining episodes by which the Lee administration’s economic record is judged. Governments that understand financial markets generally avoid making confident predictions about future stock prices. But both ruling party politicians and senior presidential aides have openly projected continued gains. Authorities also promoted speculative financial products ill-suited to Korea’s market and let single-stock funds — with none of the diversification traditionally associated with ETFs — be sold under the ETF label. The government’s response after the collapse has remained cautious. Stronger measures to remove the products from the market should be considered.
The problem extends further. During the rally, the National Pension Service was encouraged to increase its domestic equity holdings, making it more difficult to reduce its Kospi exposure after the downturn. That approach has left the retirement savings of millions more vulnerable to market swings. Public trust in government is eroded in precisely this way. Escaping the global perception of the Kospi as a speculative market will require considerable time and effort.
If no one accepts responsibility, the administration’s greatest failing may not be the policy itself but the absence of accountability. The government’s response to this market collapse could become as significant politically as other controversial reforms when voters assess its record in future elections.
President Lee has repeatedly warned that anyone manipulating stock or market prices should face severe punishment. If a president who has stressed accountability continues to remain silent over what critics see as a serious policy failure by a senior aide, confidence in the government may once again suffer a lasting blow.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
