$19 Billion AI Bet Backfires as Korean Retail Suffers Worst KOSPI Crash Since 2008
South Korea’s small traders wager $19 billion on leveraged AI chip funds. Months later, the commerce has collapsed. The KOSPI crash erased a 3rd of the index since June, the deepest slide because the 2008 world monetary disaster.
About $1.59 trillion in market worth is gone. Samsung Electronics and SK Hynix, the index’s two heavyweights, drove 76% of that loss. Now the Bank of Korea (BOK) is signaling extra charge hikes.
How the KOSPI Crash Wiped Out a $19 Billion Leveraged Bet
Leveraged single-stock exchange-traded funds (ETFs) double one inventory’s each day transfer. Gains land twice as quick. So do losses.
Since mid-2025, traders poured over $19 billion into such funds monitoring reminiscence chipmakers. Bloomberg figures present SK Hynix merchandise alone drew $10.8 billion. That is greater than double Samsung’s whole.
The timing was brutal. Sixteen of those ETFs tied to Samsung and SK Hynix listed in Seoul on May 27. Weeks later, the AI-driven reminiscence rally reversed, feeding a broader memory chip selloff.
A Hong Kong fund providing twice SK Hynix’s each day return has plunged 86% from its June peak.
Forced Selling, a Late Crackdown, and an Apology
The crash pressured brokers to dump shoppers’ holdings. Roughly $1.4 billion in retail positions have been force-sold throughout June and July, trade data reveals.
Those have been the 2 heaviest liquidation months this 12 months. Margin loans have sunk to 27.4 trillion received ($19.3 billion), the bottom degree of 2026. The squeeze echoes wider warnings about record margin debt in world markets.
Regulators tripled the minimal deposit wanted to commerce the merchandise to 30 million received ($21,700) from July 31. They additionally froze new listings and banned adverts.
Daily quantity throughout the seven leveraged SK Hynix ETFs then collapsed 90% to beneath 100 million shares. The leveraged ETF crackdown got here solely after regulators accepted the merchandise close to the market’s peak.
Finance Minister Koo Yun-cheol apologized in parliament on July 29 for approving them with out sufficient scrutiny.
Morgan Stanley, which just lately upgraded South Korean equities, estimates the deleveraging is greater than midway accomplished. Foreign traders will not be satisfied. They dumped a file $30 billion in June and greater than $10 billion since.
Retail Money Flees to Wall Street as the BOK Turns Hawkish
Korea’s small merchants, nicknamed “ants,” are voting with their wallets. They purchased $4.6 billion of US shares in July, 5 occasions June’s tempo, Reuters reported. Overseas shopping for beat home shopping for for the primary time since February.
Government tax breaks have been meant to maintain that cash at residence. Instead, the accounts noticed their first month-to-month outflow in July.
Rate coverage might deepen the ache. BOK Senior Deputy Governor Ryoo Sang-dai stated Tuesday that extra hikes are seemingly. July’s quarter-point rise to 2.75% was the primary since January 2023.
“Growth is anticipated to stay strong on the again of unprecedented revenue progress, whereas underlying inflationary pressures persist and monetary stability dangers might improve,” Ryoo made the remarks at a Seoul briefing, noting July shopper costs rose 2.8%, above the central financial institution’s 2% goal.
The leverage has unwound. Trust has not recovered. With the KOSPI at a record-low 5.1 occasions ahead earnings, discount hunters might but return. For now, the BOK’s August 27 charge decision is the market’s subsequent check.
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