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 ETFs are designed to provide up to twice the daily performance of an underlying stock.

Retail investors have been pouring into leveraged ETFs, significantly contributing to the country's stock market reaching record highs. This trend has been a key driver behind the Korea Composite Stock Price Index (KOSPI) rallying by more than 70 percent this year, following a 76 percent advance last year, positioning it as 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 cautioned. As the market has risen rapidly over the past few months, investors have increasingly borrowed money to purchase local stocks, driven by the fear of missing out on potential gains.

The amount of margin debt, or money borrowed to buy stocks, reached a record high of 36.57 trillion won (US$24.37 billion) as of Friday, based on data compiled by the Korea Financial Investment Association (KOFIA). On the same day, the KOSPI experienced a significant drop of more than 6 percent after briefly surpassing the unprecedented 8,000-point level.