Korean Investors Pay for Leverage After Kospi AI Plunge

Bank worker Yongjoon Kim lost 20 million Korean won ($14,000) on tech shares in July, money set aside for a home as he prepares to marry later this year. The South Korean Kospi had more than doubled to a record above 9,100 points in June before the slide.

That drop was no ordinary correction. Concentrated bets on two chipmakers, amplified by borrowed money and new leveraged products, turned AI spending doubts into forced selling that hit roughly one in every 30 working-age adults with margin calls.

From Record High to Historic Rout

The Kospi closed at a record 9,114.55 on June 22. By early July it had fallen more than 20 percent, entering bear-market territory. Further sessions took the decline to nearly 40 percent from the peak at one point, erasing as much as $2 trillion in market value.

July alone produced a drop of more than 33 percent, the index’s worst month on record. That surpassed the 27 percent loss in October 1997 during the Asian financial crisis and the 23 percent slide in October 2008.

The scale of a single month beating both of those crisis prints shows how quickly the unwind moved once leverage met a narrow leadership group.

• June 22 peak: 9,114.55
• Early July: below 7,250, more than 20 percent off highs
• Late July: drawdown near 40 percent from peak in places
• Mid-August recovery: roughly 23 percent off the July 30 low, back into technical bull territory

Wee Khoon Chong, Asia-Pacific macro strategist at BNY, called it one of the sharpest corrections in the index’s history, comparable to Covid-era and 1997 moves. Circuit breakers and trading curbs fired repeatedly.

Samsung Electronics and SK Hynix drove most of the damage and the earlier gains. Together they account for more than half the index’s market value.

When more than half the benchmark rests on two names, an ordinary earnings miss or a soft tape in U.S. chip peers stops looking local. It becomes an index event before the cash session is an hour old.

How Borrowed Money Made Every Swing Larger

Personal investors piled into the AI memory trade after shares soared for months. Many used leverage, controlling bigger positions than their cash alone allowed. When prices fell past agreed levels, brokers issued margin calls demanding more cash or collateral.

By July 13 more than 1.2 million leveraged retail accounts had triggered margin calls, according to Goldman Sachs figures cited across market reports. Roughly 320,000 to 360,000 accounts were fully liquidated. That equated to about one in 30 working-age adults in a country of roughly 35.7 million adults aged 15-64.

Brokerage deposits fell sharply. Single-stock leveraged ETFs tied to the chipmakers, introduced more recently, added another layer of “push-button liquidity.” Fundstrat’s Tom Lee noted that such products and zero-day options turn small moves into rapid forced sales.

• Leverage multiplies gains on the way up and losses on the way down.
• A margin call forces sale or fresh cash; failure means the broker liquidates the position.
• Forced selling then pushes prices lower, triggering more calls in a cascade.
• New single-stock leveraged ETFs concentrated the same bet and amplified daily swings.

Each step feeds the next. A gap lower at the open hits maintenance thresholds; automated and manual liquidations hit the same two names; the print weakens further; another wave of calls goes out before lunch.

Frank Benzimra, head of Asia equity strategy at Societe Generale, said the trade was crowded and that the stocks falling hardest were those carrying the most leverage. “It’s very difficult to say when will this selloff end, but at the moment, it’s definitely not the trade where we want to be.”

Crowding and leverage do not require a collapse in the long-term AI story to do damage. They only need prices to move far enough, fast enough, to trip contractual limits that investors cannot meet in cash.

Wedding Funds and Business Plans Take the Hit

Yongjoon Kim’s tech holdings slumped about 25 percent in July. Friends who went all-in with savings are in worse shape. “It’s going to sting and I’m going to have to work really hard to make up for this,” he told the BBC. “But for others who have taken more risk, they’re going to feel the pain.”

Woongsa Kim put roughly half a work bonus into SK Hynix at the start of the year. The shares quadrupled then gave back most of the gains, leaving the position at about half its peak value of hundreds of millions of won. “Thinking about it just brings tears to my eyes.”

This was money I’d invested to save before planning to leave my job around October to start my own business. But now I’m seriously wondering whether I’ll have enough.

Chanyong Park said that after earlier Nvidia gains he moved most profits into SK Hynix and is down around $10,000. Youngji Park went all-in on Samsung shares that peaked near 45 million won total value before a “gut-wrenching” slump. College student Soomin Yi pooled money with a friend on SK Hynix after FOMO and now regrets not selling near three million won per share.

• Yongjoon Kim: about 20 million won lost on tech shares earmarked for a home ahead of marriage.
• Woongsa Kim: half a work bonus in SK Hynix, now near half its peak after a fourfold rise and retreat.
• Chanyong Park: shifted Nvidia profits into SK Hynix and is down around $10,000.
• Youngji Park: all-in on Samsung that peaked near 45 million won before the slump.
• Soomin Yi: pooled funds with a friend on SK Hynix after FOMO and regrets not selling near three million won a share.

Many plan to hold for a rebound. Others describe the market as feeling more like gambling than rational pricing. Kim’s fiancée Gaeon Lee called the hit to home savings a wake-up call while worrying about the constant monitoring toll on him.

The common thread is timing. Money tied to weddings, a business exit around October, or a student’s pooled stake does not wait politely for a multi-quarter recovery path.

Two Names Decide the Index

Samsung Electronics and SK Hynix sit at the center because they supply advanced memory chips for AI infrastructure. Global worries over whether hyperscaler AI spending can stay at current levels, plus competition fears and questions about memory pricing, hit them first. Overnight drops in U.S. semiconductor indexes often spilled straight into Seoul opens.

Even strong earnings failed to stop the slide. SK Hynix reported a six-fold profit jump that still lagged some lofty expectations; the stock still fell hard. At peak influence the pair represented half or more of Kospi market value, so index moves tracked their daily swings almost one-for-one.

Crowd discussion on X noted the same concentration risk: two stocks dominating made the market easier to push lower once volume thinned and leveraged longs had to exit. Retail often bought the dips while foreigners and institutions sold, leaving households holding more of the pain.

That split matters for who still owns the drawdown. Dip-buying into a forced-selling tape can steady a portfolio only if the next bid is larger than the next margin-driven offer. When it is not, the same households that added on weakness carry a heavier share of the residual loss.

Officials Scramble After the Products They Allowed

Finance Minister Koo Yun-cheol faced parliament and apologised for the introduction of single-stock leveraged ETFs, saying they had not been considered carefully enough. The government moved to tighten rules: individual investment caps (examples floated around 20 percent of an investor’s total), higher trading costs, simulated trading requirements, and preparation of legal tools for emergency stabilisation.

1. July 16: Earlier meeting announced tighter ETF rules after the boom.
2. Mid-to-late July: Repeated circuit breakers, sidecar curbs on algorithmic trading, emergency talks.
3. July 29: Minister apology; ministry statement on further curbs and stabilisation powers after another steep drop.
4. Ongoing: Monitoring of leveraged products and retail risk as rebound begins.

Chong at BNY noted that leverage inside Korean equities remained high and further unwind could still come. The same products that juiced the rally became the accelerant on the way down.

Rule changes after the fact cannot restore liquidated accounts. They can only raise the friction on the next crowded, leveraged consensus before it reaches the same scale.

Households Felt a Market Design Problem

The path from an AI spending doubt to a wedding-fund shortfall ran through product design as much as through chip prices. Single-stock leveraged ETFs and widespread margin use turned a leadership unwind into a volume event that brokers had to process account by account.

More than 1.2 million leveraged retail accounts saw margin calls by July 13. Hundreds of thousands of those accounts were fully liquidated. In a working-age population of roughly 35.7 million, that density explains why the episode read as a social story and not only a trading-desk story.

Brokerage deposits falling in parallel with the index was a symptom of the same loop. Cash left the system just as collateral demands rose, tightening the room to meet calls without selling the underlying names.

Officials later apologised for products they had allowed and floated caps near 20 percent of an investor’s total, higher costs, and simulated trading gates. Those steps concede that access alone, without friction matched to how fast leveraged products can move, left households exposed to an index that two stocks could drag almost one-for-one.

What the Rebound Still Leaves Unresolved

By mid-August the Kospi had clawed back roughly 23 percent from the July 30 low and reclaimed technical bull territory on sessions that included a jump of more than 4 percent. Samsung and SK Hynix led that bounce as fresh optimism on AI infrastructure spending returned.

Recovered index points do not reverse a completed liquidation. Accounts closed out in July locked in sale prices; paper gains after that date belong to whoever still held or re-entered, not to every name in the earlier margin statistics.

Policy tone has shifted with the tape. Single-stock leverage is now framed as a live risk under monitoring rather than a simple extension of retail access. How tightly caps, costs, and emergency powers bind in quiet markets will decide whether the next crowded memory trade meets higher friction earlier.

Global Read-Through and the Early Rebound

Tech-heavy peers such as Japan’s Nikkei showed some tandem moves, yet broader diversified markets absorbed far less damage. Benzimra argued large markets with wider company mixes are unlikely to see the same violent swings. U.S. indexes saw only modest pullbacks even as the SOX semiconductor index entered its own bear territory at times.

That contrast underscores why many local investors who also held overseas shares fared better. Diversification cushioned the blow that pure Kospi concentration delivered. For everyday investors watching broader diversified indexes like the S&P 500, the Korean episode is a reminder that concentration plus leverage changes the risk profile completely.

By mid-August the Kospi had staged a sharp recovery. On one recent session it jumped more than 4 percent, with Samsung up over 4 percent and SK Hynix over 7 percent, taking the rebound from the July 30 low to roughly 23 percent and reclaiming technical bull-market territory. Fresh optimism around continued AI infrastructure spending, helped by strong U.S. tech results, powered the bounce. Coverage of Kospi’s sharp rebound after the rout captured the speed of that turn.

Still, the scars remain. Accounts that were liquidated locked in losses. Wedding and business savings that were not diversified stay diminished. Policy now treats single-stock leverage as a live risk rather than a growth feature. The second-order lesson is already visible: when retail leverage and product design sit on top of a two-stock AI bet, a fundamentals wobble becomes a household event and forces officials to reverse course in public.

Kim says he should have been more cautious. Others are waiting it out as a long-term game. The market has recovered some ground to levels near 6,800 and higher in the rebound, yet the path that took it there left a clear trail of margin notices, forced sales and one very public ministerial apology after the finance minister apologised for leveraged ETFs.