South Korean President Lee Jae-myung stated on Wednesday that the country's stock market is experiencing significant instability and will require time to stabilize following its recent sharp surge. This comes after the government faced criticism over extreme market swings, with some attributing the volatility to leveraged investment products.

During a high-level policy meeting in Seoul, President Lee remarked, "Our stock market is quite unstable. In fact, because the market has seen an unprecedented sharp rise in such a short period, it will need time and go through some fluctuations to settle down."

In recent weeks, the South Korean stock market has shown volatile movements. While it previously recorded some of the world's strongest gains, driven by two major chipmakers, this $4 trillion market has also become more susceptible to shifts in sentiment around artificial intelligence trading.

Leveraged exchange-traded funds (ETFs) tracking SK Hynix Inc and Samsung Electronics Co Ltd, along with the substantial daily rebalancing trades required to meet their promised returns, have been criticized for amplifying market volatility.

President Lee acknowledged the recent controversy surrounding leveraged ETFs and urged the heads of the Financial Supervisory Service and the Korea Exchange to swiftly address the issues and formulate follow-up measures.

Market participants anticipate that South Korea will introduce measures to curb the impact of high-risk products on market stability, which may include raising the minimum margin requirements for investing in leveraged ETFs. The benchmark Kospi index had earlier this month fallen into a technical bear market, down more than 20% from a recent peak. However, the index remains up over 70% for 2026 and surged as much as 8.3% on Wednesday.

The market sell-off has the potential to become a political flashpoint. The main opposition People Power Party on Tuesday accused the Lee Jae-myung administration of encouraging excessive risk-taking by pursuing ambitious stock market targets while overlooking the growing leverage in the system.