“If you buy ETFs at a time when exchange-traded funds (ETFs) are excessively large, the entire marke..
Lee Hyo-seop, head of the financial industry department at Capital Markets 硏
Leverage investment craze has increased volatility
Hedge costs have been criticized, and only individual losses have continued
Although policy contributions such as value business are not small,
Chronic undervaluation Escape Institutionalization is urgently needed
“If you buy ETFs at a time when exchange-traded funds (ETFs) are excessively large, the entire market goes up and down all at once when you sell them. When the “alpha” of discovering individual corporate value disappears and excessive leverage comes into the place where active investment is missing, the volatility bomb and hedging costs return to individual investors’ losses.”
Lee Hyo-seop, head of the financial industry division at the Korea Capital Market Institute, who attended the “2026 Great Debate on Capital Markets” held at the Korea Exchange in Yeouido, Seoul last month, cited “overheating debt (credit trading)” and “absence of a long-term investment culture” as the Achilles’ heel of the Korean stock market.
“It’s a structure where individuals spend money alone”
Lee Hyo-seop, head of the department, said, “The recent global semiconductor concentration and foreign selling are the main reasons for the increase in volatility, but ‘single-stock leveraged ETFs’ and excessive debt-to-investment culture can increase volatility.” Although diversified investment through ETFs is positive, it is pointed out that it is destroying market physical strength as it becomes bloated in combination with leverage. “If the stock price moves during the leverage ETF hedging process, the ‘Short Gamma’ phenomenon, in which hedge volume is concentrated at the closing of the market, intensifies volatility,” he said. “Individuals entered the market with leverage even though they may not lose much if they bought it in kind.””We are criticizing ourselves by fully taking on the hedging cost and operating remuneration of the short-term gamma volatility market,” he said.
Director Lee also mentioned the issue of regulatory gains. “Credit transactions with the same economic substance can use more leverage but do not receive any prior education,” he said. “When investing in leverage ETFs, we need to break away from formal education and testing to fix the system so that only individuals with practical risk tolerance can enter and resolve regulatory gains.” It also added that it is urgent to strengthen long-term holding tax benefits and foster institutional investors centered on retirement pensions and active public offering funds.
However, Lee positively evaluated the achievements of the government’s shareholder return and value business policies. According to the Korea Capital Market Research Institute, semiconductor companies’ performance improvement was the greatest in the recent leap to a premium market. However, changes in the government’s system, including the promotion of amendments to the commercial law, separate taxation on dividend income, continuous value-up programs, and prohibition of double listing, also contributed around 30% to the stock market’s rise.
“The discount rate (decount ratio), called the actual market’s capital cost, has fallen sharply from 12% in the past to 9% in the beginning of this year,” Lee said. “In terms of quantitative performance, government policies have clearly contributed to changing the market constitution.”
Low PBR causes ‘poor governance’
Director Lee believes that despite quantitative growth, nearly 70% of domestic listed companies are still below PBR (share price net asset ratio) 1, which is due to chronic governance problems. It is not easy to increase the profitability of companies right now, he said, but “If so, we should look at why they are so undervalued.” Major shareholders do not want their stock prices to rise due to the defense of management rights or inheritance tax, so there are quite a few cases where they deliberately press stock prices,” he said, adding that institutionalization to block it is urgent.
In addition, it was suggested that in order to overcome the lower dividend yield compared to major countries, it is necessary to internalize the △ stewardship code (the principle of trustee responsibility of institutional investors) △ introduce a discovery (disclosure of evidence) system △ strengthen class action and disclosure. In particular, he advised, “Korea has a significantly low distribution share ratio due to its high shareholder share,” adding, “Like the Tokyo Stock Exchange (JPX) in Japan, the distribution share ratio should be introduced in the listing requirements so that market participants can constantly monitor the company.”
Regarding the KOSDAQ market, which has been on a downward trend this year, Director Lee said, “The KOSDAQ marks its 30th anniversary this year, but it is blocked by three structural problems: life-sustaining zombie companies, too high proportion of individual investors, and unfair trade due to serious information asymmetry.”
In particular, it pointed out the contradictions in the IPO stage. “As a result of the analysis, as many as 100 companies are listed on the KOSDAQ market a year, and many companies pursue listing for the purpose of large shareholders’ excitement (investment recovery) at the “peak (peak) out” of sales and profitability,” Director Lee said. “In the end, individual investors receive all the supplies from the high point as stock prices have declined since the listing.” In order to solve this problem, he saw that KOSDAQ companies should expand their value-up disclosures and induce them to issue a large number of analysis reports of marginalized KOSDAQ stocks using artificial intelligence (AI) technology.
He also called for the resolution of chronic information asymmetry, saying, “Only insiders currently know about paid-in capital increase, BW bonds with underwriting rights (BW), issuance of convertible bonds (CB), and disclosure of changes to the largest shareholder, but it is difficult for individuals to know in a timely manner.” In order to foster institutional investors who will support the KOSDAQ market, he added, “Tax benefits should be improved and benchmark index reorganization should be actively induced so that KOSDAQ venture funds and pension funds can invest in high-quality companies from a long-term perspective.”
“Yeouido Islands” is an online series by the Mail Business Securities Department that spotlights people in the financial investment industry every weekend. From the moment of the decision to move the market to the backstory of the industry, it unravels the flow of capital markets around people.
