How Leveraged ETFs Turned South Korea’s Stock Market Into a Casino and Why the U.S. Might Be Next

Do you remember past financial contagions? Those periods of time that tend to occur just when "things can't get any better than this." 1987, 2000, 2008, and 2022 are the U.S. versions of those.

And, with the summer froth having convinced the broad market that nothing can go wrong, my risk-manager brain goes into overdrive. Because when fundamentals leave the building, as they have recently, it allows a lot of bugs to creep in. Such as leverage-induced selloffs. Like that we just saw unfolding in South Korea.

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South Korea's benchmark KOSPI index cratered 44% from its June peak — a collapse worse than the 2020 pandemic crash — before staging a record-breaking 18% single-day rebound on Friday. Is all well? Not likely.

The primary catalyst wasn't just fear over AI capital expenditure or tech debt. It was a hyper-leveraged feedback loop that trapped over a million retail investors and forced the government to issue a public apology.