South Korea's Kospi index has gone from the best performing major market in the world to one of its worst in a matter of weeks, and retail investors are counting the cost. Tens of millions of Korean retail investors piled into leveraged single stock ETFs tracking chip giants Samsung Electronics and SK Hynix during this year's AI fuelled rally, and many are now deep underwater.
The Kospi has shed close to 40% since its June peak, with two of its worst single sessions wiping more than $2tn off the market in 48 hours. Margin debt hit a record 38.6tn won last month before the wave of forced liquidations dragged it back down, and brokerages say close to half their Samsung clients and most of their SK Hynix clients are now sitting on losses. South Korea's finance minister has since apologised over the leveraged products and flagged tighter regulation.
The trigger was a mix of factors. Regulators approved 16 leveraged ETFs tracking Samsung and SK Hynix in May, which made swings in both stocks worse once sentiment turned. That turn came as China said it had begun mass producing its own chipmaking tools, feeding fears it's closing the AI gap on Korea. SK Hynix added to the panic with plans to lift spending 50% this year, even after profit surged sixfold but missed expectations. With so many investors on margin, the falls triggered forced selling that fed further falls, a spiral some analysts say is edging toward a financial crisis.
For Australia, the fallout has been an unlikely win. The ASX 200 has spent years lagging Wall Street and Asia's tech heavy markets, largely because local tech stocks make up just 2% of the index. That weakness is now working in its favour, with global funds rotating out of Korea and into Australia's big, liquid blue chips as the AI trade wobbles. The big four banks have rallied more than 8% since June 30, with Commonwealth Bank back within striking distance of its record high, while the ASX 200 sits at a five-month high.
It's a reminder that the ASX's low exposure to tech can work both ways. The market missed most of the AI boom on the way up, but that same setup is now sheltering it on the way down.
