(Bloomberg) — The sense of gloom on Wall Street is putting pressure on some of the most committed backers of American exceptionalism: South Korea’s risk-seeking retail investors.
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These investors plowed $10.2 billion into US stocks and exchange-traded funds through March 20, a record quarterly inflow, according to depository data that goes back to 2011. They have favored some of the worst-hit shares such as Tesla Inc., down 38% this year, and put billions into leveraged ETFs that amplify price swings.
Their faith in the US stock market is now facing its toughest test in years. President Donald Trump’s aggressive approach to global trade has weighed heavily on share prices, dragging the Nasdaq 100 Index down 6% since the start of 2025. Wall Street banks are rethinking lofty index targets, while a two-year boom in the Magnificent Seven technology stocks has become a monthslong decline.
Noh, a white collar worker from Seoul, sold his home last year and put almost half of the proceeds into the US stock market. The $480,000 he used to buy shares of Nvidia Corp. is now down around 10%, while his $69,000 investment in Tesla has lost 40% of its value, he said.
“The Korean stock market was doing really terribly at that time and I had already cut losses from my Korean stock holdings,” he said, asking to be identified only by his family name. “I thought I would just trade US stocks real quick for about a 5% gain, because the US stock market eventually goes up.”
That quick trade has now become a long-term investment. Noh said he is determined to hold onto his shares until they turn a profit, saying he will wait five or even 10 years if he has to.
The danger of more investors falling into this trap is making regulators and executives in Seoul nervous. The Financial Supervisory Service is considering tighter rules on some overseas exchange-traded products, a move that will quell some of the riskiest bets on US stocks. Mirae Asset Securities Co., one of the country’s biggest brokerages, has suspended trading of some overseas ETFs and paused margin loans for Tesla shares.
Mirae Asset is concerned about investors taking short-term, high-risk bets, said Kim Hwa-Joong, chief executive officer of private wealth management at the firm.
But so far, its clients aren’t heeding its warnings, she said.
Korea’s retail investor base is notoriously hungry for risk, with bets on cryptocurrencies and exotic structured products previously leading to trouble.
Leveraged Trades
Korean investors have put a net $2.2 billion into Tesla shares this year, making it by far the hottest trade. They have put another $1.7 billion into a leveraged ETF seeking two times the daily moves of the automaker’s shares. They have also flocked to Palantir Technologies Inc., Nvidia Corp. and a leveraged ETF betting on US semiconductor stocks.
The buying has got stronger as US stocks have become weaker. In the wake of Tesla’s 28% drop in February, Koreans have this month bought $836 million of its shares and put another $586 million into the two-times ETF. Tesla’s stock has shed another 15% in March.
They have put $2.5 billion into five popular US leveraged ETFs so far this year through March 20, according to depository data. But even after the inflow, their investments in these ETFs are still worth less than they were at the end of 2024 — pointing to a steep decline in valuations.
Korea’s famously swashbuckling investors are drawn to the US stock market in part because of easy access. Competition between brokers has knocked down barriers to foreign investment, and Korean investors wanting to take risky bets in their domestic market face tougher rules than they would overseas.
Many Korean investors are also skeptical of their domestic market, where sprawling conglomerates dominate and the benchmark Kospi Index is still far below the high it hit in 2021. A brief lurch into martial law last year has exacerbated the sense of pessimism.
“South Korea will not see the fast economic growth it has had in the past,” said Kim Yesung, a 29-year old product designer from Seoul. “The US is much larger, more active and there is more growth for the companies listed there,“ he added.
Kim was putting about a third of his salary into US stocks until late last year, when he accepted a voluntary severance package as his company was cutting staff. He used the money to keep buying shares and leveraged ETFs.
Ironically, Korean shares are enjoying a resurgence just as those in the US stumble. The Kospi Index has gained around 10% this year, helped by cheap valuations and brighter hopes for the chip sector. But so far, Korea’s army of small investors remains committed to the US stock market — whatever the risks.
Many of the latest crop of investors, who started trading after Covid-19, have become complacent about the US stock market’s ability to bounce back from every dip, said Sang Eui-min, a small investor from Seoul who has written a book on the stock market.
“They don’t know how scary the market can be,” he said.
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