South Korean Market Hits Peak as Leveraged ETF Surges

South Korea's KOSPI index reaches a record high, fueled by chip stocks and a positive economic outlook, but foreign selling and leveraged ETF risks raise questions.

The South Korean equity market has entered record territory, with the benchmark KOSPI index reaching an unprecedented high. This surge has propelled the performance of the Direxion Daily South Korea Bull 3X Shares (KORU), a triple-leveraged exchange-traded fund designed to magnify daily returns. However, a clear divergence in investor behavior is raising questions about the rally's staying power, even as indices break new ground.

Semiconductor Strength and Central Bank Support

The primary catalyst for the market's ascent was stronger-than-anticipated quarterly results from U.S. chipmaker Nvidia. This news triggered significant buying activity in key South Korean semiconductor suppliers, including Samsung Electronics and SK Hynix. The KOSPI concluded its sixth consecutive positive session, closing at a historic 6,307.27 points.

Further support came from the Bank of Korea, which revised its economic growth forecast for 2026 upward by 0.2 percentage points to 2%. The central bank cited robust semiconductor exports as a key reason for its more optimistic outlook. Reflecting this bullish momentum, the KORU ETF advanced by 2.77%, while its net asset value (NAV) increased by 3.03% over the same period.

A Market Divided: Domestic Buyers vs. Foreign Sellers

Beneath the surface of the record-setting index, a stark contrast in investment flows has emerged. Domestic retail and institutional investors have been net purchasers, injecting fresh capital into the market. In contrast, foreign investors have extended a selling streak that has now lasted for seven consecutive sessions.

International market participants divested a net total of approximately 2.11 trillion won (about $1.47 billion USD) in equities. Notably, this selling pressure was concentrated in the semiconductor and automobile sectors. Market observers largely interpret this activity as profit-taking following the substantial preceding rally.

Considerations for Leveraged Exposure and Future Catalysts

The KORU ETF offers investors a path to amplified exposure, but this comes with specific considerations. The fund's expense ratio is notably higher than non-leveraged alternatives, ranging between 1.32% and 1.33%. Additionally, its 3x leverage is reset daily, which means holding the fund over extended periods can result in returns that deviate significantly from simply tripling the underlying index's long-term performance.

Financial experts are increasingly focusing on efforts to normalize the South Korean capital market's valuation. A central goal is to eliminate the persistent "Korea Discount," a term referring to the lower valuations historically applied to Korean equities compared to global peers.

Key events in the near term could provide further market direction. South Korea's Gross Domestic Product (GDP) growth data is scheduled for release on Monday, March 9. Furthermore, market participants are looking ahead to the rebalancing of the "Korea Value-Up Index" at the end of May, which is expected to take effect in mid-June 2026.