South Korea’s Regulators Accidentally Triggered a 30% Small-Cap Rally

South Korea’s financial regulators wanted to calm a volatile stock market as they cracked down on leveraged ETFs. However, they have made it more chaotic instead.

Crackdowns on leveraged ETFs tied to Samsung Electronics and SK Hynix, which required retail investors to post higher cash deposits, did not cool speculation. Retail money rotated en masse into Kosdaq small caps, which have now surged 30% from their July 30 low.

How Restricting Chip ETFs Sparked a Kosdaq Surge The Kosdaq index jumped 6.8% on Monday alone, enough to trigger a Korea Exchange program trading halt for the third time this month. Money has moved away from SK Hynix and Samsung and into smaller caps.

Image Source: Trading View Park Wooyeol, a global ETF analyst at Shinhan Securities, described the shift plainly. “We are seeing more money flow to Kosdaq, particularly today,” he said.