South Korea's Blue House Responds to Stock Market Plunge: Deflects Accountability, Claims to Be 'Closely Monitoring' the Market
Miles Bennett
South Korea's presidential office refused to address calls for accountability over the policy chief who pushed single-stock 2× leveraged ETFs; KOSPI has plunged on consecutive days, retail margin-call rates sit at 7–8%, and whether deleveraging finishes before regulation catches up will determine if the market can stabilize.
Where did this crisis start?
Presidential policy chief Kim Yong-beom declared in January that "if Nasdaq can do it, why can't we" — then directed financial regulators to study launching 2× leveraged ETFs linked to individual semiconductor stocks.
This means → a high-risk product was green-lit not by regulators' professional judgment but by a single directive from the top of the Blue House.
Former Seoul city councilor Lee Jong-bae filed a criminal complaint with the Supreme Prosecutors' Office on August 3, accusing Kim of abuse of power, coercion, and obstruction of business — alleging he pressured regulators to rush approvals ahead of elections.
Why is the Blue House refusing to answer directly?
Senior presidential communications secretary Seong Gi-hong offered one line on August 6: "What matters now is to closely monitor the market and prepare countermeasures."
In plain terms = the Blue House strategy is to hide behind "we're busy stabilizing markets" so no one can ask "who is responsible." It neither admits fault nor distances itself from Kim.
This reflects the presidency's dilemma — accountability would be an admission of policy failure; silence keeps the pressure from parliament and the public mounting.
What are parliament and regulators doing?
Parliament held hearings last week. Park Soo-young, an opposition People Power Party lawmaker on the Strategy and Finance Committee, said: "The entire process was pushed through at extraordinary speed. Without a presidential-office directive, this could not have happened so fast."
Regulators are moving on two fronts: financial supervisors are drafting "emergency action authority" to cut leverage from 2× down to 1.5× or even 1× when needed; the Korea Exchange has told asset managers it will effectively freeze new ordinary-ETF listing reviews starting this month.
Seoul National University professor Ahn Dong-hyun proposed applying the leverage cut only to new purchases while gradually shrinking existing positions — a method he says would reduce market volatility.
How far has the market fallen — and how badly are retail investors hurt?
KOSPI plunged 5.12% on August 3 to 6,257.45; on August 6 it dropped over 5% intraday before narrowing to –3.89% at time of writing.
SK Hynix and Samsung Electronics fell roughly 9% and 6% respectively on consecutive sessions — the semiconductor sector bore the brunt.
CITIC Securities data: broker margin balances shrank 10% in a single day on July 31, the steepest drop this year; on July 30–31 retail daily forced-liquidation volume exceeded ₩100 billion, with the margin-call rate at 7–8% — far above the roughly 1% level seen in stable markets.
Has the leverage risk been flushed out — and what comes next?
CITIC Securities' verdict: retail deleveraging is accelerating, but the risk is not yet fully cleared.
In plain terms = margin calls are still happening — the pace is slowing, but the tap is turned down, not off.
CITIC adds that Korea's market-stabilization fund is small and deploying the National Pension Service carries moral-hazard concerns, so volatility will likely stay elevated. This means → the market has no powerful backstop in the short term; whether deleveraging finishes before tighter regulation kicks in is the key test for whether Korean equities can find a floor.
Content is for reference only, not financial advice.