South Korea's Kospi Plunges 6.4% Intraday as Memory Chip Giants Lead Selloff and Leveraged Structures Come Under Pressure
Miles Bennett
Korea's KOSPI plunged as much as 6.4% Friday morning, with Samsung Electronics and SK Hynix both tumbling over 7%; This means → the two chip giants that make up 54% of the index are dragging the entire market into a leverage-driven stampede.
What triggered the crash?
Broadcom's AI-business guidance missed expectations the day before; the Philadelphia Semiconductor Index (SOX) sold off hard, and the panic spread to Asia overnight.
Samsung Electronics and SK Hynix both fell more than 7%, with selling pressure intense enough to trigger Korea Exchange's program-trading circuit breaker.
This means → a routine AI-valuation reset on Wall Street got amplified many times over in Korea by an extremely concentrated index structure.
How far had the rally run?
Through Thursday, KOSPI was up more than 100% year-to-date; SK Hynix had gained over 250%, Samsung close to 200%.
Nearly three-quarters of the index's gains came from these two stocks alone.
In plain terms = Korea's entire 2025 bull market was essentially a two-stock story — Samsung plus Hynix — and once they turned, the index had no cushion.
Why did leveraged ETFs pour fuel on the fire?
In late May, Korea Exchange approved 16 single-stock leveraged and inverse ETFs tied to Samsung and Hynix. In just five trading days, they already accounted for 21% of Korea's total ETF turnover.
Some products saw three-day cumulative turnover top ₩28 trillion; total leveraged-ETF volume around the two chip giants reached nearly ₩37 trillion within days.
Meridian One Asset Management CEO Kenny Kim noted these products carry short gamma — a hedging dynamic that forces buying on the way up and rapid selling on the way down — amplifying swings in both directions.
This means → leveraged ETFs are not bystanders; they are the stampede's accelerator.
What is the funding picture saying?
By May 22, investor brokerage deposits had fallen from ₩137 trillion mid-month to ₩121 trillion; fresh inflows were slowing.
Yet margin-loan balances hit a record ₩38 trillion by end-May, up more than ₩10 trillion from the end of 2025.
NH Investment Securities trader Shawn Oh summed it up: "Cash buffers are shrinking while leverage keeps climbing."
In plain terms = the ammunition is running low, but borrowed money keeps piling higher — a textbook fragile structure.
Could a rate hike deliver a second blow?
Korean economic data keep improving; the new Bank of Korea governor has struck a hawkish tone, and markets widely expect a rate hike as early as July.
Mirae Asset Securities strategist Seo Sang-young said: "Korean equities are extremely sensitive to bond yields because a significant share of trading is funded by borrowing."
This means → rising rates would directly push up financing costs, further squeezing the appeal of leveraged trades.
A mid-rally breather or the start of something deeper?
Eugene Asset Management CIO Ha Seok-Keun in Seoul argued: "The biggest risk right now is not deteriorating fundamentals but overheated positioning."
Goldman Sachs this week raised its 12-month KOSPI target from 9,000 to 12,000, while conceding a short-term correction is "not surprising."
This reflects the market's core divide: the long-term AI-bull thesis remains intact, yet the near-term interplay of deleveraging speed and rate-hike timing will determine whether this plunge is a pause for breath or the start of a real fall.
Content is for reference only, not financial advice.