Behind the high volatility of the South Korean stock market - the rapid expansion of leveraged ETFs When discussing the Korean stock market in the previous article, the focus was on KOSPI and KOSPI VIX. KOSPI continues to rise, but KOSPI VIX is also at a high level, indicating that the South Korean stock market's recent rise is not stable, and while the index is rising, market volatility (risk) is also increasing. At that time, it was also mentioned that although the financing balance of individual investors in South Korea was at a historical high, the proportion of financing to the free circulation market value was only about 0.8%. Therefore, looking at the financing accounts alone, the South Korean market has not yet reached the stage of extreme relative leverage crowding in the past. Today, another set of data was added, showing that the size and exposure of leveraged ETFs in South Korea have risen rapidly in 2026. According to data from EPFR and Goldman Sachs, the AUM of leveraged ETFs in South Korea has grown to approximately $45 billion, including both domestically registered leveraged ETFs and overseas registered leveraged ETFs related to South Korea. More importantly, the total exposure of leveraged ETFs has rapidly increased from around 0.7% to 1% of South Korea's freely traded market value for most of 2025, to around 2.5% to 3%. Previously, we saw that the proportion of Korean retail investors who directly raised funds to buy stocks was only about 0.8%. It seems that the relative leverage pressure is not extreme, but if leveraged ETFs are added, the leverage exposure in the market is significantly higher, and the growth rate this year is very fast. It can be understood that the leverage of the South Korean stock market is not only in the financing account, but also in ETF products. Financing accounts represent retail investors borrowing money directly to buy stocks, while leveraged ETFs represent investors indirectly adding leverage through products. The proportion of the former in the free circulation market value is not extreme, while the latter's exposure has risen to around 2.5% to 3%, which will make it easier for market fluctuations to be amplified. Additionally, a characteristic of leveraged ETFs is that they typically require daily rebalancing. When the market rises, in order to maintain target leverage, the product may need to increase its exposure, and when the market falls, it may need to reduce its exposure. This mechanism itself will make it easier for the market to catch up with rising prices and amplify downward pressure when falling. This also explains why the South Korean stock market has a combination of rising indices and increasing volatility. It also indicates that the Korean market has entered a stage of high heat, high leverage product participation, and high volatility. To put it simply, Koreans borrow money from securities firms to invest in stocks. It may not seem like they have reached the ceiling yet, but many people buy ETFs with built-in leverage, which means they don't have to borrow so much money themselves. The product has already added a layer of leverage for them. Just like borrowing money to speculate in the cryptocurrency industry, the borrowed money may not be fully utilized, but the purchased amount has already changed from ordinary Bitcoin: native to BTC with double or triple leverage. On the surface, the loan may not seem that high, but in reality, the position has become much heavier. In this way, when it rises, it does indeed surge faster, but when it falls, it also hits harder, which is why the South Korean stock market feels like it is rising day by day and falling day by day. End