Seoul: The chief of the country's financial watchdog has expressed concerns that retail investors could suffer losses amid increased market volatility, according to the Financial Supervisory Service (FSS) on Tuesday.

According to Yonhap News Agency, during a meeting on consumer risk response a day earlier, FSS governor Lee Chan-jin said retail investors could increasingly pivot toward highly volatile, risky assets as the country is set to introduce single-stock leveraged, or inverse, exchange-traded funds (ETFs) next week. These financial instruments are designed to provide up to twice the daily performance of an underlying stock, which could entice more retail investors seeking higher returns.

Retail investors have been pouring into leveraged ETFs, significantly contributing to the country's stock market reaching record highs. Backed by strong retail investor activity, the country's benchmark Korea Composite Stock Price Index (KOSPI) has surged by more than 70 percent so far this year, following last year's 76 percent rise, making it the best performer among major markets.

The introduction of single-stock leveraged ETFs could further accelerate capital flights to high-risk financial products, the watchdog indicated. The situation highlights the pressing need for caution and informed decision-making among retail investors as they navigate an increasingly complex and volatile financial landscape.