Shares of the Southern KOSPI ETF (03121) dropped more than 3% in late trading on Thursday, extending losses as investors digest the central bank's aggressive monetary tightening and ongoing regulatory efforts to cool leveraged trading. The fund was last seen trading down 3.09% at HK$6.28, with turnover reaching HK$16.78 million.

In a historic policy move, the Bank of Korea raised its benchmark interest rate by 25 basis points to 3.00%, marking the first time the central bank has delivered back-to-back rate hikes immediately following an initial increase. The decision comes as official data released by South Korea's statistics agency on Wednesday showed inflation climbing back above the 3% threshold in August, fueled largely by elevated import costs for energy. As a highly import-dependent nation for fuel supplies, South Korea remains vulnerable to persistently high international oil prices amid the ongoing Middle East crisis.

Meanwhile, regulatory pressure on single-stock leveraged ETFs is beginning to show measurable results. South Korean authorities have implemented a combination of measures, including raising margin requirements and mandating five-day simulation trading, to curb speculative activity in these high-risk products. The total assets under management in such ETFs have already contracted sharply from US$11.4 billion to US$5 billion, with net outflows of approximately US$1 billion recorded in August alone. Trading volumes have also plummeted to just 4% of their previous peak levels.

The effectiveness of these measures is evident in market stability indicators. The KOSPI index volatility gauge has fallen from a June high of 97 to a four-month low of around 50, signaling improved market conditions and reduced speculative pressure on the benchmark index.