South Korea's stock market is the best-performing major market globally this year, but you wouldn't know it from reading the headlines alone. Media coverage has focused almost entirely on the market's "crazy" price swings and the fervor of its local retail investors. That wild trading culture has now become a significant national burden for the country.

For decades, South Korea's equity market has been notoriously volatile, partly because retail investors account for a huge share of daily trading volume. Now, with AI-related companies driving the rally, sharp price spikes and steep selloffs are making the market even more erratic. Volatility in South Korea has exceeded 60% this year, and it briefly approached 100% during the summer months. No other major economy has posted such extreme volatility even during good times, and it is exceptionally rare even in periods of severe financial crisis.

On one hand, the market is home to increasingly difficult-to-manage traders; on the other, it hosts a growing number of powerful global brands. South Korea produces a wide range of products the world needs—from defense systems and cosmetics to K-dramas and K-pop content—as well as the memory chips that are now in extremely high demand for AI data centers. If not for these turbulent price swings, the market would be a prime destination for discovering high-quality companies.

Yet Korean stocks still trade at a significant discount to global peers. That "Korea discount" has long been attributed to the cyclical nature of the country's major industries and the weak corporate governance of its large conglomerates, or chaebols. Recent reform efforts have tried to address these issues—limiting voting rights of controlling families, requiring directors to answer more to shareholders, and strengthening minority shareholder protections. Despite those measures, the discount persists, and extreme price volatility continues to scare away serious long-term investors.

The South Korean government is both part of the solution and part of the problem. While pushing market reforms to boost valuations, it has also adopted policies that spur speculation. That is particularly surprising given that President Lee Jae-myung is a left-leaning politician. During his 2025 election campaign, Lee followed in the footsteps of several recent presidents by vowing to eliminate the "Korea discount" while setting an aggressive target for the KOSPI index: he pledged to double the index within his five-year term. That promise further fueled the rally, which was so powerful that the market blew past Lee's "KOSPI 5000" goal in just a few months.

Lee's administration has also opened the door wider for risk-takers, allowing retail investors to buy leveraged ETFs on individual stocks, including SK Hynix and Samsung Electronics. These two semiconductor giants are not only the main drivers of the Korean market but also major contributors to its volatility. Lee himself sent an unmistakable buy signal to the public: he sold his apartment and said he planned to put the proceeds into ETFs. When the market corrected sharply this summer, those heavily leveraged retail positions were liquidated, amplifying the downturn.

Even after a 35% plunge, South Korea's equity market remains nearly three times higher than when this rally began in early 2025. But the scale of price swings is already at extreme levels. Over the past 12 months, volatility has risen to a level that has occurred only four times since records began in the 1980s. Each previous occurrence involved an emerging market—Nigeria, Turkey, Brazil, and Greece—and all happened in years when those countries faced financial crises.

This remarkable rally is backed by one major fundamental: corporate earnings in South Korea have surged an extraordinary 300% over the past year, largely driven by memory chip makers. That has also made up for decades of single-digit returns in the local market. Household stock wealth has tripled from $1.5 trillion to $5 trillion. In other words, South Korean investors have gained more stock wealth in the last 18 months than they accumulated over their entire lifetimes up to that point.

Koreans' passion for trading is just as visible in global markets. Due to enormous demand from local investors, cryptocurrencies often command higher prices in Seoul than on international exchanges, a phenomenon known as the "kimchi premium." During the 2024 crypto surge, trading volumes denominated in won even exceeded those in dollars at one point. As the AI investment boom expands, Korean investors have poured tens of billions of dollars not only into their domestic market but also heavily into U.S. stocks. They now make up the largest group of foreign retail investors in the U.S. equity market.

After this summer's market correction, Lee's government began taking steps to curb stock speculation. That speculative behavior is linked to a broader gambling culture in South Korea, which has deep-rooted social underpinnings. Korean law bars residents from most forms of gambling at home or abroad, and all but one of the country's 18 casinos ban locals. Nevertheless, Koreans are estimated to spend tens of billions of dollars annually at online casinos and gambling venues in other parts of Asia. The government has cut lottery payout ratios to record lows, yet ticket sales continue to set new records. A recent paper by scholars at Hanyang University connects Koreans' "pronounced preference" for high-risk, lottery-like stocks to the country's high rates of gambling addiction and suicide—both among the highest in the world.

A trading culture obsessed with overnight riches siphons capital away from more productive investments, including the many fundamentally sound companies listed in South Korea. Those firms might have attracted more foreign capital if international investors were not so wary of the market's violent swings. As the world's sixth-largest stock market, what happens in South Korea matters far beyond its own borders. With about 75% of listed companies' profits coming from overseas, the KOSPI has long been regarded as a leading indicator for global bull and bear markets. Now, however, the market's increasingly erratic behavior is damaging the "Brand Korea" image.