[Sidong's Take] ETFs and Leverage Are Building a Sell-off Domino — Regulators Must Step In
The root cause of the Kospi's plunge lies not in earnings or fundamentals but in the concentration of Samsung Electronics and SK hynix and the leverage-and-ETF structure surrounding them. Using a domino analogy: nothing goes wrong if the first domino — large-cap selling — doesn't fall, but once it does, the damage compounds exponentially down the line. The Kospi's roughly 6% drop that day, versus declines of only around 1% for Japan's Nikkei, Taiwan's index, and Hong Kong's Hang Seng, was cited as evidence that Korea's market alone is being shaken disproportionately.
This amplification stems from leveraged ETFs mechanically buying more as underlying assets rise and selling more as they fall. With Samsung Electronics, SK hynix, and the so-called "Sensitive 7" together accounting for 64% of Kospi market cap, a wobble in SK hynix can cascade into selling of semiconductor index ETFs, then other large caps, then overseas-listed related products. The result is the unusual pattern of sidecar and circuit-breaker halts being triggered multiple times a month.
Based on this, the argument was made that institutions and pension funds — the buyers capable of catching the first falling domino — need to adopt a different stance than they currently do. Regulators and industry were called on to jointly design structural safeguards against the domino's spread, and the political proposals to regulate leverage products or temporarily pause National Pension Service rebalancing were framed in this same context. While reiterating that earnings and the outlook themselves remain sound, the core argument is that institutional buffers are needed to cushion flow-driven shocks.