The problem with single-stock leveraged exchange-traded funds (ETFs) tracking "Samjeon-nix" — Samsung Electronics and SK hynix — is no small matter. These products have landed at the center of controversy, cited as the chief culprit behind the "roller-coaster KOSPI," where volatility interruption mechanisms are triggered almost daily. With sidecars invoked 40 times already this year, investors now mock the phenomenon as "roll call." Foreign media have noted that "Korea's stock market has degenerated into a casino," and even the expert who first introduced ETFs to Korea has gone so far as to say, "Don't invest in leveraged ETFs." The opposition party has even come forward with a "leverage parliamentary inquiry." A policy originally rushed in to stabilize the won-dollar exchange rate has boomeranged and taken aim squarely at the government.
In any case, the unprecedented volatility triggered by Samjeon-nix leverage will subside over time. But the extreme stress endured in the meantime falls entirely on the shoulders of 14 million investors. The real problem comes afterward. What will remain for the retail investors who have weathered such cruel, nerve-fraying volatility day after day? Will they be forged into "hearts of steel" and trade even more diligently, or will they storm out, declaring, "I'm done with stocks"? The latter seems far more likely.
The Lee Jae-myung administration, upon taking office, moved to invigorate the stock market with slogans of "KOSPI 5000" and "KOSDAQ 3000." While one goal was to normalize Korea's undervalued stock market, the fundamental aim was to redirect the enormous sums locked in real estate toward the stock market — chasing two rabbits at once: stabilizing home prices and boosting the equity market.
But this leverage debacle has thrown cold water on the government's money-move strategy. Amid already tightened lending, news is circulating of people selling stocks to help cover apartment prices, and extreme volatility could fuel this further. In fact, from January to April this year, funds raised by selling stocks and bonds to buy homes reached 3.7255 trillion won. In particular, the share of such funds used to purchase high-end homes worth more than 1.5 billion won surged from 3.2% in 2020 to 13.2% in April this year. In the end, the likelihood has grown that investors battered by severe volatility will pack their bags and leave the "nauseating stock market." Signs are already emerging. As of the 15th of this month, the balance of fixed-term deposits at the five major banks stood at 965 trillion won, up 15 trillion won from the end of June. That marks the largest increase in one year and two months. By contrast, cash on the sidelines awaiting stock investment fell to 108 trillion won, a drop of 28 trillion won in just over 20 days. It is a sign of a "reverse money move."
A money move into capital markets does not succeed simply because money shifts. Policy and investment culture must change together. The fact that more than 10 trillion won flooded into Samjeon-nix leverage in less than two months alone shows the formidable "one big shot" mentality of Korean retail investors. Yet the government set the table abruptly with little preparation, only to face a fierce backlash. To be sure, the government has, in its own way, taken steps toward market advancement, including revising the Commercial Act, improving the treasury stock system, expanding dividends, and pursuing value-up policies.
But something crucial was missing: establishing sound investment principles. There was little visible effort to systematically inform investors of the basic principles of long-term, diversified, and indirect investing, and to back this up with policy and tax measures. It was, in effect, like laying down a highway without any safety education. In the end, Korea's stock market fell into the swamp of "day-trading, all-in, direct" investing — the exact opposite of sound investment principles. And the pinnacle of that was Samjeon-nix leverage.
Investing legend Warren Buffett said that "the stock market is a device for transferring money from the impatient to the patient." It is a remark that cuts to the essence of long-term investing. Only when this is joined by the diversification principle of "don't put all your eggs in one basket" and the indirect-investing philosophy championed by John Bogle, the founder of the index fund, does a capital market become healthy and strong. What the government must create is not some number of KOSPI points, but a market where people can park long-term funds without fretting. In other words, money chasing short-term gains moving from real estate into stocks does not make a money move.
Only when long-term, diversified, and indirect investing takes root as a culture can companies raise capital stably and citizens enjoy the benefits of compounding returns. A money move without a sound investment culture is nothing more than building a house on sand. What the government must build now is not flashy new products, but the old yet solid basic principles of investing.
