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🇰🇷 South Korea /Economy & Trade

South Korean President orders measures to curb ETF volatility, boost capital markets

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

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  • South Korean President Lee Jae-myung ordered swift measures to address instability in leveraged exchange-traded funds (ETFs) tracking single stocks like Samsung Electronics and SK Hynix.
  • The president also emphasized normalizing the capital market, calling for progress on legislation like the "Stock Price Manipulation Prevention Act" to prevent deliberate undervaluation by major shareholders.
  • Lee stressed the need to reduce South Korea's heavy reliance on real estate for asset allocation, advocating for a more balanced approach that includes a normalized stock market and support for personal bankruptcies to allow for fresh starts.

South Korean President Lee Jae-myung has directed financial authorities to quickly implement measures to stabilize the market, particularly concerning leveraged exchange-traded funds (ETFs) that track single stocks. The president specifically mentioned ETFs linked to major companies like Samsung Electronics and SK Hynix, which have faced criticism for amplifying stock market volatility.

Recently, you seem to be suffering a lot because of Samsung Electronics and SK Hynix ETFs.

— Lee Jae-myungAddressing the Financial Supervisory Service Governor about issues with single-stock leveraged ETFs.

During a work report session, Lee instructed Financial Supervisory Service Governor Lee Chan-jin to address the issues arising from these single-stock leveraged ETFs. These products, designed to double the performance of their underlying assets, were introduced with the aim of stabilizing the won-dollar exchange rate by encouraging domestic investors to return from overseas markets. However, their structure, which requires buying more when prices rise and selling more when they fall, has been criticized for exacerbating market fluctuations.

President Lee also highlighted the broader need to normalize South Korea's capital market, which he described as "quite unstable." He questioned why efforts to be included in the MSCI Developed Markets Index, which could aid stabilization, were not progressing more effectively. "The proportion of real estate in our society's asset allocation is too large; it is very primitive," Lee stated, underscoring the importance of capital market normalization as a key national policy.

The proportion of real estate in our society's asset allocation is too large; it is very primitive. Capital market normalization is a very important national policy.

— Lee Jae-myungEmphasizing the need to reduce reliance on real estate and strengthen the stock market.

To further this goal, the president urged for accelerated progress on legislation such as the "Stock Price Manipulation Prevention Act." This proposed law aims to curb practices where major shareholders or owners of listed companies intentionally depress stock prices to reduce inheritance and gift taxes during succession processes. Lee also advocated for a more supportive system for personal bankruptcies, suggesting that allowing individuals to discharge debts they cannot repay would benefit society by enabling them to restart their financial lives.

If you have incurred debt and lack the ability to repay it, it is beneficial for society to allow bankruptcy and discharge, enabling a fresh start.

— Lee Jae-myungAdvocating for a more supportive system for personal bankruptcies.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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