(EDITORIAL from The Korea Herald on Aug. 7)

Financial turmoil in South Korea revealed how political meddling can destabilize markets. Introduced in late May, single-stock leveraged ETFs linked to Samsung Electronics and SK hynix proved to be a catalyst for market unrest. Instead of merely boosting investment interest, these products magnified every subsequent decline. Consequently, violent swings throughout June and July led to automatic liquidations, repeated trading halts, and substantial losses for retail investors.

Regulators eventually tightened investment requirements and suspended further launches, but the damage had already spread widely. Many have blamed the turmoil on global technology correction and semiconductor cycles, but they do not account for Korea's market volatility appearing within weeks. Market structure played a role, as Samsung Electronics and SK hynix dominated the benchmark index.

Introducing leveraged ETFs that doubled daily price movements intensified pressure on an already narrow market. Daily rebalancing and margin requirements amplified declines, leading to a feedback loop that affected the broader market. The government's response unintentionally highlighted the need for better safeguards. They accelerated plans to raise the minimum cash deposit from 10 million won to 30 million won, examined portfolio exposure limits, and halted new listings of similar products.

However, this response suggested that such measures deserved closer examination before reaching investors. Criticism of the approval process for leveraged ETFs grew, with opposition parties demanding investigations and critics from all sides speaking out. Even figures aligned with the Lee Jae Myung administration called for a closer look at the regulatory process.

This issue goes beyond one financial product, emphasizing the importance of transparent decision-making. Trust in financial supervision relies on both institutional independence and regulatory expertise. When policy initiatives seem to originate from political offices while regulators adjust afterward, the line between oversight and political direction becomes blurred.

While foreign media may overstate Korea's unpredictability as an investment destination, sound fundamentals cannot fully compensate for doubts when financial rules seem vulnerable to shifting political priorities. Investors evaluate the credibility of policymaking, and sudden regulatory shifts, emergency interventions, and uncertainty about who ultimately directs financial oversight raise premiums demanded by global investors.

A transparent review of how single-stock leveraged ETFs were approved would strengthen the market rather than weaken it, clarifying whether internal objections were adequately considered and whether institutional safeguards functioned as intended.