After the collapse of the South Korean stock market, retail investors "lost confidence": Remember two principles—First: do not buy Korean stocks, Second: adhere to the first rule.

Korean retail investors were once known for their risk-taking spirit, but July's historic plunge in the KOSPI index has completely shaken the group's confidence. From the streets of Seoul to social media, anger and regret are spreading, with some investors vowing never to touch Korean stocks again. This crash is deeply reshaping Korean retail investors' investment psychology.

In July, the KOSPI index plummeted 22% in a single month, the biggest monthly drop since the global financial crisis, with four circuit breakers triggered in the month—a new record. Despite a strong 18% rebound at the end of the month, retail investors recorded net sales of KOSPI stocks on the rebound day, showing that the recovery of confidence is still a long way off.

According to Bloomberg's report on August 4, Seoul resident Kim Han-kyung stated that she has engraved two principles in her mind:

"First: do not invest in the Korean stock market; Second: abide by the first rule."

The trigger for this crash partially points to the leveraged single-stock ETF products launched by the government. Retail investors accumulated purchases of about 78 trillion won (about $54.2 billion) in KOSPI stocks between May and June, only to suffer heavy losses amid the violent turbulence in July. Market analysts warn that the deleveraging process is unlikely to end in the short term, and the sharp volatility in tech and semiconductor stocks may last for months.

Feverish entry, heavy losses trapped

Since May this year, optimism has swept through the Korean stock market. President Lee Jae-myung promoted stock market reforms, coupled with the official listing of single-stock leveraged ETFs at the end of May, providing retail investors with tools to pursue amplified returns. FOMO (fear of missing out) sentiment spread rapidly.

A large number of retail investors entered the market under these conditions, concentrating their bets on AI leaders such as Samsung Electronics and SK Hynix. Combined, these two world-leading memory chip makers account for more than 50% of KOSPI index weight and are core beneficiaries of the global AI boom for the Korean market.

However, the sharp reversal in July caught this new wave of entrants off guard. The report notes that Kim Han-kyung bought Korean stocks for the first time in early May. She recalls:

"That was the era of KOSPI mania, and I was completely swept up in the craze. Now I'm really scared."

Forty-year-old Lee Jung-min also took out a mortgage on his apartment for 50 million won to enter the market, and is now deeply in the red. "The government poured fuel on the fire with those leveraged ETFs," he said. "They turned the stock market into a casino, and I think that's wrong."

Market data shows that the intensity of this crash was not to be underestimated.

In July alone, Samsung Electronics fell 21%, and SK Hynix tumbled by as much as 35%. Nevertheless, Samsung's share price has still climbed more than fourfold since the beginning of 2025, while SK Hynix's has surged nearly tenfold. Even after this correction, the KOSPI index remains among the world's top performers for the year.

Kim Dong Woo, a 33-year-old investor with over seven years of trading experience, commented:

"Such intense volatility shows the market is still not functioning normally."

Leveraged ETFs Become the Primary Target

Single-stock leveraged ETFs were initially launched by Korean regulators as a tool to expand investment channels for retail investors and curb capital outflows to overseas equivalent products. However, in this crash, they became the primary target of widespread blame for amplifying market volatility.

Reports say that eToro Group's London-based global market analyst Lale Akoner described this event as "a textbook case of crowded trades meeting leverage."

She pointed out that the deleveraging process is unlikely to be resolved within days, and investors should expect tech and semiconductor stocks to remain highly volatile in the coming months. But she also emphasized, "This should not be misread as the complete collapse of the AI investment thesis."

In response to market turmoil, Korean authorities have already taken action: in mid-July, they suspended new single-stock leveraged ETF listings, and last week promised more measures to stabilize the stock market and limit retail exposure to these products. However, many retail investors and market participants believe these moves came too late.

Francis Tan, Asia Chief Strategist at Indian Suez Wealth Management in Singapore, said that the current environment presents a "major challenge" for the Korean government.

On social media, retail investors' dissatisfaction is everywhere, mostly directed at the government. Jung Eui-jung, head of the Korea Shareholders Alliance with 64,000 members, bluntly stated:

"Retail investors are furious with the government, and the level of anger and criticism has reached its peak."

Analysts point out that while fundamentals behind the Korean stock market's AI-driven surge remain unchanged, for many retail investors, the painful experience in July has deeply illustrated this lesson: The forces that can deliver excess returns can also swallow them up just as quickly. The market may recover in months, but rebuilding retail investor confidence could take much longer.