By Cynthia Kim and Yena Park
SEOUL, June 8 (Reuters) - Seoul resident Laura Byun has long preferred U.S. mutual funds over Korean shares, but the KOSPI's blistering rally changed that and her risk tolerance for debt.
Feeling left out by the surge that has propelled the Korean benchmark to the world's best performer, Byun tapped a short-term bank overdraft of about 15 million won ($9,687) to buy a leveraged Samsung Electronics fund, delivering gains of about 20%.
Then came the reversal. By Monday morning,
her position had swung to -17%, she said, after the KOSPI plunged by over 8% in the wake of a tech selloff in U.S. markets.
The leveraged ETF tied to the chip giant tumbled as growing bets on a Federal Reserve rate hike snapped Wall Street's nine-week winning run, wiping out her gains and dragging her into losses.
"I'm not gonna do anything. I don't know, I'm gonna wait for a rebound, unless like it halves or something," Byun said.
Her experience captures a growing risk in South Korea's markets, exposing how borrowed bets by a swelling wave of retail investors, known as "ants", are chasing a runaway stock rally and rattling policymakers wary of sharper volatility and a painful correction.
A Bank of Korea (BOK) report on Thursday showed leveraged investment into equities by retail investors topped a record 60 trillion won ($39.06 billion) as of the end of May, as the KOSPI more than doubled in just six months to become the world's top performer.
Powering part of that debt push was the May 27 introduction of South Korea's first-ever single-stock leveraged ETFs linked to chipmakers Samsung Electronics and SK Hynix - whose profits have soared with the AI boom - that offered investors double the daily return of the stocks.
Demand was so strong that the Korea Financial Investment Association's (KOFIA) website crashed on the first day retail investors were required to complete mandatory training to trade the products, according to applicants such as Byun. More than 350,000 people have since completed the course, KOFIA said.
FOMO STOKES LEVERAGE RISKS
But leverage cuts both ways. The ETFs double losses as well as gains, within South Korea's cap of twice a stock's daily move - a feature regulators say many latecomers may underestimate.
"Investors should be cautious of amplified market volatility during potential downturns, particularly if late comers to the market increasingly rely on leverage to chase stock surges out of FOMO (Fear Of Missing Out)," the BOK said, adding that the margin loans are concentrated on chip shares.
Finance Minister Choi Sang-mok last week also flagged concerns about rising leveraged stock investments, pledging to manage risks tied to "excessive herd-like behaviour."
The Financial Services Commission is monitoring leverage levels and regularly engaging brokerages, said an official on condition of anonymity, adding it has no immediate plans for new restrictions beyond existing training requirements.
Samsung and SK Hynix now make up more than half of the index in terms of market capitalization and intraday swings of 5% to 10% on the KOSPI have become increasingly common.
The leverage boom is part of a broader push to draw Korean investors back from U.S. markets, where many have gravitated since the pandemic.
The effort has worked - perhaps too well, and ants have been voracious on their return home. Margin-based equity investment jumped 72.5% in 2025 alone, far outpacing 36.3% growth in the United States, 36% in China and 21% in Japan, BOK data show.
Daily trading volume hit a record 106.2 trillion won in May, nearly 60% above the averages from January through April, and about four times that of 2025 average.
A survey of local brokerages showed the largest buyer age group was those in their 40s, accounting for 28.9% of the total inflow into single-stock leveraged ETFs linked to chipmakers Samsung Electronics and SK Hynix between May 27 and June 1, according to Yonhap News. Those in their 50s made up 28.7%, while people in their 30s accounted for 22.2%.
"I used to trade U.S. equities, but I bought SK Hynix just before the war broke out," said a 40-year-old housewife in Seoul, who asked not to be named.
"Everyone is talking about the leveraged ETFs. SK Hynix had run up too high to buy outright, so I bought the double-leveraged ETF instead. But the volatility is extreme, and it makes me anxious. I’ll probably sell soon."
($1 = 1,548.5400 won)
(Reporting by Cynthia Kim and Yena Park; Editing by Brenda Goh and Shri Navaratnam)
