Korean stocks fell to circuit breaker again! Regulators issue warning again, calling on asset management companies to strengthen ETF management
The head of South Korea's financial regulator on Monday urged major asset managers to better protect financial consumers amid rising market volatility, calling on the companies to ensure the accuracy of investment information when promoting such products. At a meeting with the heads of major asset management companies, Lee Chan-jin, director of the Financial Supervisory Service (FSS) of South Korea, said that as the size of the exchange-traded fund (ETF) market has almost doubled this year, the role and responsibility of asset management companies in selling and managing ETFs is becoming increasingly important.
The head of South Korea's financial regulator on Monday urged major asset managers to better protect financial consumers amid rising market volatility, calling on the companies to ensure the accuracy of investment information when promoting such products. At a meeting with the heads of major asset management companies, Lee Chan-jin, director of the Financial Supervisory Service (FSS) of South Korea, said that as the size of the exchange-traded fund (ETF) market has almost doubled this year, the role and responsibility of asset management companies in selling and managing ETFs is becoming increasingly important. "Currently, our capital market is facing increasing risk factors, including explosive growth, high concentration of funds, and intensified market volatility," Li Canzhen said. Lee Chan-jin also mentioned that South Korea’s domestic ETF market has grown rapidly, and its net assets have soared from 297.1 trillion won at the end of last year to 507.4 trillion won (approximately US$338 billion) at the end of May this year. It is worth noting that Li Canzhen has recently expressed concerns about the newly launched leveraged ETFs on more than one occasion, saying that such products have caused many side effects, and his agency is formulating measures to better protect the rights and interests of investors. He said last week that over-leveraged stock investments could harm families' financial health and warned retail investors not to take on excessive risks as stocks rise. Last month, he said he regretted not preventing the listing of leveraged ETFs on individual stocks and warned that its negative effects had significantly expanded. Such products aim to achieve double the return of the underlying stock, but their mechanical rebalancing process forces them to buy more when prices rise and sell more when prices fall, a mechanism that can significantly amplify market volatility. The Bank of Korea also recently warned that single-stock leveraged trading ETFs linked to Samsung Electronics and SK Hynix may further increase market concentration, amplify market fluctuations, and strengthen unilateral trading capital flows. Korean stocks frequently stage "roller coaster" prices When Lee Can-jin made the above speech, the Korean stock market once again rode a "roller coaster" on Monday: it opened down 0.9%, fell by more than 1%, then quickly rose and turned upward, but soon returned to the decline. As of press time, the decline was more than 5%. The share prices of heavyweights Samsung Electronics and SK Hynix fell by more than 6% and more than 10% respectively. Around 09:35 Beijing time, the Korean Exchange activated the sidecar mechanism and suspended KOSPI programmed selling. As the hottest stock market in the world this year, the violent fluctuations in South Korean stocks have attracted global market attention. According to statistics, since the beginning of the year, the Korean stock market has triggered the "sidecar mechanism" (suspending programmed trading) more than 30 times, exceeding the 26 times during the 2008 financial crisis. The market-wide circuit breaker mechanism (suspension of all transactions) was triggered 6 times, accounting for half of the total 12 times since the mechanism was implemented in 2000. (