President calls for measures to address ETF risks as market whipsaws

President Lee Jae Myung ordered financial authorities on Wednesday to swiftly prepare additional measures to address risks posed by single-stock leveraged exchange-traded funds (ETF), which have recently been blamed for heightened stock market volatility.

Lee pinpointed the high-risk products tied to Samsung Electronics and SK hynix and instructed the heads of the Korea Exchange and Financial Supervisory Service (FSS) to "swiftly and effectively prepare supplementary measures” during a policy briefing with ministries and agencies related to economy and finance at the Blue House in central Seoul.

“It is inevitable that the introduction of new systems can sometimes cause confusion due to side effects, so handle such matters with caution,” Lee instructed Korea Exchange Chairman Jeong Eun-bo and FSS Gov. Lee Chan-jin.

Leveraged ETFs, designed to amplify the gains and losses of an underlying asset by a predetermined multiple, were introduced to the market in a bid to keep domestic investors' money in the local stock market. However, the products have received criticism after stock market volatility intensified around a month after the leveraged Samsung and SK hynix ETFs launched.

“I am accepting the responsibility wholeheartedly as a market manager,” FSS Gov. Lee said as he bowed his head when the president asked whether he is having a hard time over the issue.

Finance Minister Koo Yun-cheol has also voiced concerns over the risks related to the ETFs and promised to draw up supplementary measures to address the problems and better protect investors.

"The normalization and advancement of the capital market is an important task, so please keep a close eye on it,” President Lee instructed at the meeting.

The president further called for the normalization of the stock market to alleviate the issue of asset concentration in real estate.

“Isn’t the stock market supposed to create opportunities for companies with true potential, enable funds to be raised and provide investment opportunities for the people?” he asked.

The first day of policy briefings was also attended by the Ministry of Finance and Economy, the Ministry of Data and Statistics, the Ministry of Planning and Budget, the Financial Services Commission (FSC) and tax agencies as Korea aims to increase its potential growth rate to 3 percent through price stabilization and innovative growth engines.

The president generally offered words of encouragement rather than reprimanding attendees during the briefing, a contrast to the first policy briefing in December of last year.

Finance Minister Koo pledged to “mobilize all policy efforts" to stabilize food, energy and living costs and manage inflation to within 3 percent in the second half of the year.

The government is also pushing for the internationalization of the Korean won, centered on a 24-hour foreign exchange market and eased regulations on foreign exchange transactions. The ministry said it will announce a road map on the internationalization of the won later this month, a key task as Korea seeks inclusion in the developed-market index under MSCI. 

Likewise, funds from expenditure restructuring and tax revenue resulting from the semiconductor supercycle will be channeled toward the three "megaprojects" in chips, AI data centers and physical AI. The development of high-performance AI and post-semiconductor industries, such as defense and nuclear power, will also be promoted as key large-scale projects.

In an FSC report released Wednesday, the financial watchdog said it would keep household debt on a tight leash through the second half of the year and allocate more state funds to chips, AI and robots.

The government signaled stricter real estate loan regulations for the second half of this year to manage the total volume of household debt. Even if executives and employees at companies such as Samsung and SK hynix receive substantial bonuses, policy changes are expected to limit how much the increase in mortgages available to them.

The commissions said it will cap the annual increase in household debt at 1.5 percent, down from 1.7 percent last year, and tighten rules for housing loans.

The National Growth Fund, a public-private vehicle that invests in semiconductors, AI and robots over five years, will increase to 200 trillion won ($134 billion) from 150 trillion won, according to the report.

The commission will set up a specialist fund manager, Korea Strategic Technology Partners, to invest up to 10 trillion won of public and private money into national strategic technologies such as quantum computing and nano AI semiconductors. It will also launch an 880 billion won ultra-long-term fund to invest in technology sectors requiring over 10 years of investment.

During the policy meeting, President Lee also ordered forgiveness for long-term delinquent debtors, instructing tax officials that “there should be no situation where people die or are isolated from society due to unpaid debts, preventing them from engaging in economic activities and ultimately causing the entire social community to suffer.”

He further urged the Korea-U.S. Strategic Investment Corporation, newly established to implement follow-up measures for U.S. investments under the bilateral Joint Fact Sheet from November of last year, to “handle this matter with extreme caution in terms of safeguarding national interests, as it involves the long-term interests of the people.”

Over the next several weeks, some 140 ministries and state agencies will report to the president over nine sessions on their policy directions. 

BY SARAH KIM [[email protected]]