South Korea's benchmark Kospi index extended its sharp decline on Thursday, tumbling 5% to 6,238 as heavyweight chipmakers Samsung Electronics and SK Hynix slipped amid a global technology selloff. According to The Economic Times, Samsung shares tumbled over 5% and SK Hynix tanked nearly 7%, with the South Korean market tracking a tech rout on Wall Street where Nasdaq fell nearly 1% following disappointing earnings from SpaceX and Advanced Micro Devices. Foreign investors continued to be net sellers, selling shares worth $108.5 million, adding to the pressure on domestic markets. The latest decline has intensified losses for retail investors who were swept up in the earlier frenzy, with retail Korean investors vowing never to invest in the market again. As reported by Bloomberg, Kim Han-kyung, a Seoul resident in her late 30s, resolved never to invest again, while others are comparing the $3.9 trillion market to a casino. Many blamed the government for its push to invest in the stock market, as well as for the debut of single-stock leveraged ETFs offering the prospect of amplified gains.
The South Korean market's extreme volatility has been unprecedented, with the Kospi rallying over 122% since the beginning of the year to hit a lifetime high of 9,386 in June on the back of a global AI frenzy, taking the position as the world's best-performing stock market this year. However, as reported by The Economic Times, things soon began to go downhill after the initial surge. The concentration risks became apparent when analysts pointed out that chipmakers Samsung Electronics and SK Hynix, which make up just over half of the benchmark Kospi, created significant market vulnerability. The final catalyst seemed to be single-stock leveraged ETFs linked to these two chipmakers, which further increased concentration risks and led to the Kospi spiralling down. The index had previously witnessed extreme volatility, hitting an all-time high in June before tumbling around 40% over the next six weeks, with circuit breakers triggered four times in July alone.
South Korea's President Lee Jae Myung recently acknowledged the market's instability, stating "Our domestic stock market is quite unstable" and noting that since the country's stock market experienced a historically unprecedented massive surge in such a short period, it would require time and fluctuation to stabilise. According to The Economic Times, international brokerages believe these factors led to amplified volatility despite resilient corporate fundamentals. They expect that as market "deleveraging" progresses and foreign selling pressure eases, the next leg of Korea's rerating is likely to be supported by corporate share buybacks and treasury-share cancellations, particularly from large-cap companies. This should become a new structural source of demand and help Kospi re-rate toward a 10,000-11,000 target.
The concentration was amplified by leverage through leveraged exchange-traded funds (ETFs) that use derivatives and borrowing to deliver a multiple of the daily return. In late May, Korean asset managers listed 16 leveraged ETFs tracking Samsung and SK hynix alone, with retail investors accounting for a large share of the money invested. As reported by Mint, a leveraged ETF has to buy more as the stock rises and sell as it falls to maintain its stated leverage. Nithin Kamath, co-founder of Zerodha, noted that MTF remains small relative to India's overall market capitalization, but a sharp correction could trigger severe selling in small- and mid-cap stocks. The combined MTF book crossed ₹1 trillion for the first time in September 2025, with exchange rules requiring investors to provide 20-50% of the purchase value as margin.
According to NDTV Profit's Money Wise interview with Kirtan Shah, Founder and CEO of Trivanda Wealth, the recent South Korean market correction serves as a stark reminder of momentum investing pitfalls. The Kospi plunged sharply after a euphoric rally, but Shah argues the correction was broader, affecting AI-linked markets and stocks worldwide. Many semiconductor, memory-chip and technology names that had surged over the past two years have corrected between 30% and 50%, demonstrating how quickly momentum can reverse. As reported by Mint, the episode has shown the risks of chasing narratives, with several similar accounts circulating through July where investors took courses on leverage and invested in two stocks, only to lose more than half their value. Vishal Dhawan, founder of Plan Ahead Wealth Advisors, emphasized that leverage changes the nature of risk, with an unlevered investor in a falling market having the choice to wait, while a levered one may not get that choice. For diversification, Anish Teli, managing partner at QED Capital Advisors, advised investors to understand what they are buying when using passive funds, looking at index constituents and sectoral biases to ensure portfolios aren't overly dependent on a handful of stocks or sectors.
