South Korea's retail investors have suffered massive losses as a $19 billion leveraged AI ETF bet collapsed during the worst KOSPI crash since 2008. According to reports, the KOSPI crash erased a third of the index's value since June, representing the deepest slide since the 2008 global financial crisis. About $1.59 trillion in market value has been wiped out, with Samsung Electronics and SK Hynix, the index's two heavyweights, driving 76% of that loss. The KOSPI fell 22% in July, one of its largest monthly drops on record, after tumbling as much as 34% from a July 22 record high before a nearly 18% single-day rally on the final trading day cut the losses.
Since mid-2025, investors poured over $19 billion into leveraged single-stock ETFs tracking memory chipmakers. As reported by Bloomberg, SK Hynix products alone drew $10.8 billion, more than double Samsung's total. The timing proved brutal as sixteen of these ETFs tied to Samsung and SK Hynix listed in Seoul on May 27, just weeks before the AI-driven memory rally reversed and triggered a broader memory chip selloff. A Hong Kong fund offering twice SK Hynix's daily return has plunged 86% from its June peak. Regulators blamed single-stock leveraged ETFs tracking Samsung Electronics and SK Hynix for the swings and raised the minimum cash deposit for trading those products from 10 million won to 30 million won.
The crash forced brokers to dump clients' holdings, with roughly $1.4 billion in retail positions force-sold across June and July, according to exchange data. Margin loans have sunk to 27.4 trillion won ($19.3 billion), the lowest level of 2026. Trading in the affected ETFs has since collapsed by as much as 93%, with daily volume across the seven leveraged SK Hynix ETFs collapsing 90% to under 100 million shares. The KOSPI's volatility has created opportunities for smaller companies, with the KOSDAQ notching five straight gaining sessions through August 6 even as the KOSPI kept swinging.
A separate AI-linked selloff has weighed on KOSPI heavyweights, with SK Hynix closing 14.65% lower and Samsung Electronics dropping more than 13% on July 28 on fears that AI infrastructure spending was peaking. Micron's 39% plunge added to the pressure on Korean memory makers. However, this volatility has created opportunities in smaller companies, with HLB, SPG, and Peptron each surging more than 50% over the past month on the KOSDAQ. HLB's rally follows its cancer drug rivoceranib, with the FDA clearing a Chinese manufacturing facility two days after rejecting it for a third time. SPG is rallying on its push into humanoid robot actuators, while Peptron jumped on obesity-drug supply chain speculation.
Foreign investors have turned bearish on South Korean markets, dumping a record $30 billion in June and more than $10 billion since. According to Reuters, Korea's small traders, nicknamed 'ants,' bought $4.6 billion of US stocks in July, five times June's pace, with overseas buying beating domestic buying for the first time since February. Government tax breaks meant to keep money at home instead saw accounts experience their first monthly outflow in July. The Bank of Korea's hawkish stance adds to market pressures, with Senior Deputy Governor Ryoo Sang-dai indicating more rate hikes are likely. July's quarter-point rise to 2.75% was the first since January 2023, as July consumer prices rose 2.8%, above the central bank's 2% target.
