Beware of the "herd effect"! South Korean finance minister: Will intervene in the forex market if necessary, concerned about leveraged stock speculation.

Beware of the "herd effect"! South Korean finance minister: Will intervene in the forex market if necessary, concerned about leveraged stock speculation.

South Korean financial authorities have sent a strong signal to stabilize the market. Finance Minister Koo Yun-cheol stated that measures will be taken immediately if necessary to counter excessive volatility in the foreign exchange market, pay attention to risks in the stock and bond markets, express concern about leveraged stock speculation, and prevent the "herd effect" from amplifying market turbulence.

According to Reuters, Koo Yun-cheol held a meeting in Seoul on Thursday with Bank of Korea Governor Shin Hyun Song, Financial Services Commission Chairman Lee Eog-weon, and Financial Supervisory Service Commissioner Lee Chan-jin to discuss recent financial market conditions. Koo said the government is closely monitoring external uncertainties to prevent them from turning into broader market anxiety.

This statement came as the Korean won weakened rapidly. Due to rising tensions in the Middle East and fresh air strikes between the US and Iran, the won fell to 1 USD = 1530.8 won during Thursday’s session, the weakest level since March 31. After the finance minister’s remarks, the won trimmed its losses.

Following the official statement, South Korea's stock market opened lower the same day. The KOSPI index dropped more than 1%; Samsung Electronics fell over 1%, SK Hynix more than 3%, and LG Group 9%. After a year of sharp gains in South Korean stocks and rapid increases in leveraged capital, regulators are increasingly worried about overheated trading and concentrated holdings.

Official Statement: "Immediate Measures" If Necessary

The Ministry of Finance said that during the meeting, Koo Yun-cheol emphasized that the government is closely monitoring volatility in the foreign exchange market and will take “immediate measures” when needed to respond to excessive market fluctuations.

“The government is on high alert monitoring the situation to prevent external uncertainties from intensifying market anxiety,” the Ministry quoted Koo. He added the government will act if necessary to respond to excessive market movements.

In a post-meeting statement, the Finance Ministry said Koo stressed necessary measures would be taken immediately to counter excessive “herd behavior” in the forex market. He also pledged to proactively manage risks related to the domestic stock market and address excessive volatility in the bond market.

Officials at the meeting linked recent market volatility to the war in the Middle East and continued net selling of Korean stocks by foreign investors. The Finance Ministry said the sharp rise in Korean stocks prompted foreign investors to rebalance positions and profit-take, exacerbating fluctuations.

Currency Moves First: Won Hits Two-Month Low, Then Trims Losses

The won opened Thursday at 1 USD = 1530.8 won, down 13.6 won from the previous close, hitting its lowest in nearly two months. It's the first time since March 31 that the won dropped below 1 USD = 1530 in intraday trading.

After the finance minister’s remarks, the won trimmed its losses. The won has stayed above the psychological level of 1 USD = 1500 won for twelve consecutive trading days.

Exchange rate pressures are influenced by the energy market. As risks of US-Iran military actions rise and prospects for a Middle East ceasefire dim, global oil prices surge, further increasing the sensitivity of Korea’s financial market to external shocks.

Stock Market Reaction: High-Level Markets Face Regulatory Warnings

Following the minister’s comments on stock market risk and leveraged investing, the Korean stock market opened weaker on Thursday and major heavyweight stocks came under pressure. Samsung Electronics fell over 1%, SK Hynix more than 3%, and LG Group 9%.

The KOSPI index has performed strongly over the past year. Since the start of 2026, KOSPI has surged over 100% in less than six months, rising more than 200% since June last year. The total market capitalization of Korean stocks has just surpassed $5 trillion, becoming the sixth largest in the world.

However, gains are highly concentrated. Chip giants Samsung Electronics and SK Hynix account for over 40% of the index weighting, with year-to-date gains of 200% and 250% respectively. Both have a market cap over $1 trillion and are main drivers of the index’s rise. If the chip sector fluctuates, the index could face even bigger swings.

Component stock performance also shows divergence. As of the end of May, there are 835 companies trading on KOSPI, but only 373 have risen this year, less than half. Excluding Samsung Electronics and SK Hynix, the remaining 800+ stocks contribute under 30% to the index’s gains.

Leverage Heating Up: Regulatory Focus Shifts from Price Volatility to Investor Risk

Korean financial officials also noted rising stock margin loans could pose potential risks to the economy, and the government will closely monitor trends and protect investors.

According to the Financial Supervisory Service, as of Q1 2026, the margin loan balances at Korea’s top ten securities firms reached nearly 36 trillion won, a 20-year high and almost double the previous year. Investors aged 50 and above account for 62.3% of these loans at the top ten firms. For those over 60, loan balances have jumped from about 3 trillion won to 8.02 trillion won in a year, or about 2.7 times higher.

Retail investor participation is also rising. Data shows that in Q1 2026, the number of new accounts opened by under-18s in Korea grew nearly tenfold year-on-year. Among retail investors, there’s a mindset: “Better to collapse completely than miss out on this bull market.”

Market volatility indicators are also climbing. According to the Korea Exchange, the main board has triggered 20 “sidecar” temporary trading halts so far this year, nearly matching the 26 halts seen in all of 2008. When KOSPI 200 futures fluctuate by 5% or more for at least a minute, program trading pauses for five minutes.

Fundamentals Still Emphasized, But Policy Tolerance Is Dwindling

Officials also stressed Korea’s economy remains solid. The Finance Ministry noted that exports in May were up 53.2% year-on-year, and the local stock market ranks sixth globally in market capitalization.

This means Korea’s current official priority is not to deny fundamentals, but to prevent external shocks, currency depreciation, concentrated stock rallies, and leveraged capital resonance. For investors, official statements show Korean policymakers’ tolerance for excessive volatility in equities, bonds, and forex is decreasing.

Some analysts believe Koo Yun-cheol’s remarks aim to manage market expectations in advance and guard against asset bubbles and sharp turbulence. In the short term, such signals may suppress investor risk appetite and make the won, bonds, and high-flying stocks priority targets for regulatory communication.

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