The South Korean government is "not intervening in the market for now," stating there is currently no need to activate the stabilization fund; the stock market slump is not entirely caused by leveraged ETFs.

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The South Korean stock market triggered a circuit breaker for two consecutive trading days. During intraday trading on Tuesday, the KOSPI once fell more than 12%, triggering the circuit breaker mechanism for the second straight session and falling below 5300 points. Its accumulated decline from the historical high has exceeded 43%. Panic is spreading rapidly in the market.

In the face of heavy losses suffered by retail investors and public pressure, Kim Yong-beom, head of the Blue House Policy Office, who is currently accompanying President Lee Jae-myung on a visit to Brazil, stated that the government is closely monitoring the market, but it is not yet at the point where the Stock Market Stabilization Fund needs to be initiated. He characterized this plunge as a "reevaluation process" of the market searching for an equilibrium, and noted that the government will focus on studying what structural factors amplified this volatility and may take further action as required.

According to South Korea's JoongAng Ilbo on July 29, at a press conference in São Paulo, Brazil, Kim Yong-beom pointed out that the expansion plans of Chinese memory chip companies like CXMT and market doubts regarding whether large-scale AI investments can be turned into real revenue are important external factors behind the recent decline.

At the same time, he attributed the high volatility in South Korea’s stock market to the active trading of retail investors, the proliferation of derivatives, and the excessive weighting of semiconductor blue chips, and distanced responsibility from leveraged ETFs, stating, "All the problems cannot be attributed to a single cause."

According to Fntoday, the above statement quickly sparked a strong backlash in South Korean online communities and among investors. Critics believe that the government previously hyped the market and attracted retail investors to enter, but now that the market is collapsing, it shifts the blame to "market self-adjustment", showing an inconsistent stance.

Blue House: The Market Is Seeking Equilibrium, No Need for Policy Intervention

Reports said that at the press conference in São Paulo, Kim Yong-beom characterized this decline as a "reevaluation process" of the market regarding the growth potential of the AI industry, considering it a natural phase for the market to find balance, rather than a crisis requiring government intervention.

He cited the expansion plans of Chinese memory chip firms such as CXMT as an external shock, saying, "From China's perspective, CXMT is a key enterprise promoted at the national level, and in the long run China may quickly rise with technological advantage." He interpreted this as a signal for South Korea's semiconductor industry to increase investment, not a negative signal. He emphasized that "the real demand for AI and semiconductors is not a short-term phenomenon, and demand will continue steadily."

Regarding the issue of leveraged ETFs, Kim Yong-beom stated that the Financial Services Commission will continue to promote related systemic improvements, but also noted that it is necessary to review the roots of volatility from more macro perspectives, such as the structure of derivatives and investor composition, and plans to conduct a comprehensive examination of market volatility issues with the Financial Services Commission and the Financial Supervisory Service.

Structural Fragility: Retail Investors, Derivatives, and Semiconductor Concentration

Kim Yong-beom attributed the abnormal high volatility in the South Korean stock market to three major structural factors: extremely active retail investor trading, a huge number of related derivative products, and the excessive weight of Samsung Electronics and SK Hynix in the market.

He pointed out that South Korea’s stock price trend is highly correlated with the Philadelphia Semiconductor Index, "whenever there is debate regarding AI and semiconductors, the Korean market may display the greatest degree of global volatility." This structural feature means that whenever the semiconductor narrative is disrupted, the Korean market is hit first and foremost.

Kim Yong-beom also mentioned that the issue of leveraged ETFs has been particularly prominent since the end of May, but emphasized that not all problems should be blamed on this single factor, and a systematic review of the overall structure of the capital market is needed.

Retail Investors’ Fury: Government Hyped Entry, Now Shifts Blame to the Market After Crash

The Blue House's calm response has provoked a strong backlash among retail investors.

According to reports, critics pointed out that the current government, at the beginning of its term, publicly set targets of "KOSPI 5000" and even "9000", attracting a large number of retail investors to the market. But now, as the market falls sharply from its peak and most investors are suffering heavy losses, officials refuse to take policy responsibility, instead citing "market self-adjustment" and "structural reasons".

Comments like this have flooded online forums:

"The government encouraged retail investors to enter the market, but now that the market has collapsed, not only do they refuse to admit fault, but even say it's someone else's problem."

"The government has an inescapable responsibility for the market overheating and drastic volatility. To claim no stabilization measures are needed now is shirking responsibility."

There are also investors criticizing President Lee Jae-myung for his silence on the stock market's plunge, believing that the absence and indifference of senior officials is unacceptable when large numbers of people are suffering serious losses. Analysts predict that as market volatility persists, policy accountability pressures from retail investors and opposition parties will further intensify.

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