--- title: "South Korean Stock Market Amid Leverage Surge: Must Violent Delights Have Violent Ends?" type: "News" locale: "en" url: "https://longbridge.com/en/news/289170842.md" description: "Driven by the AI boom and high leverage among retail investors, the KOSPI index has risen over 100% in two years. Regulators introduced single-stock leveraged ETFs to attract capital, causing market leverage to soar. Influenced by stronger-than-expected US non-farm payroll data and rate hike expectations, tightening liquidity triggered a sharp market correction. On June 8, the KOSPI plummeted nearly 9%, triggering circuit breakers and highlighting market vulnerability under high leverage" datetime: "2026-06-09T10:06:16.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/289170842.md) - [en](https://longbridge.com/en/news/289170842.md) - [zh-HK](https://longbridge.com/zh-HK/news/289170842.md) --- # South Korean Stock Market Amid Leverage Surge: Must Violent Delights Have Violent Ends? The American TV series Westworld features a line: “These violent delights have violent ends.” This classic description, originating from Shakespeare, fits the current South Korean stock market perfectly. In 2025, the South Korean stock market (KOSPI index) rose 76%. Before the sharp declines on June 5 and June 8, 2026, the cumulative gain reached 105%, breaking through the 8,800-point mark and making it the strongest-performing stock market globally for two consecutive years. This robust bull market has far exceeded the Nasdaq's gains during the 2000 internet bubble. Entering 2026, the South Korean market continued to surge, driven by multiple factors including the sustained prosperity of the AI supply chain, tight supply and demand for High Bandwidth Memory (HBM), and global capital chasing tech assets. Driven by fear of missing out (FOMO), South Korean retail investors (known as “ants”) employed unprecedented leverage. By the end of May, margin balances in the South Korean stock market reached approximately 38 trillion South Korean won ($24.7 billion), an increase of nearly 40% from the end of 2025 and doubling over the past year. In late January this year, South Korean regulators approved the launch of single-stock leveraged ETFs based on blue-chip stocks, with a maximum leverage ratio of 2x, aiming to attract domestic retail investors back to the local market. In late May, South Korea launched the first batch of single-stock leveraged ETFs linked to Samsung and SK Hynix (16 in total). These derivatives, designed to amplify daily return volatility, attracted billions of dollars in frantic inflows from retail investors within just days of listing. Consequently, leverage in Asian markets soared, with the assets under management of leveraged ETFs in South Korea and the Taiwan region of China reaching a record $65 billion, a 490% surge from the beginning of the year. After US non-farm payroll data significantly exceeded expectations on June 5, the market quickly priced in a 25 basis point rate hike within the year. As liquidity expectations tightened abruptly, the South Korean stock market fell sharply for two consecutive trading days. June 8 saw a “Black Monday,” where the KOSPI index plummeted nearly 9% within just three minutes of opening, triggering circuit breakers. Under extremely high leverage and overcrowded trading structures, the traditional price discovery function of the South Korean market has been significantly weakened. Any correction is no longer a repricing of fundamentals but is amplified by mechanical selling from leveraged ETFs. Under this negative gamma effect, daily fluctuations of over 5% in the KOSPI index and circuit breaker triggers have become commonplace. Notably, a leveraged ETF linked to SK Hynix rose 50% even as its underlying stock plunged nearly 8%, fully exposing the distortion in market liquidity and pricing mechanisms. ## **South Korean Market Has Become an Amplifier of Global AI Trading Risks** The most distinctive feature of the South Korean stock market is its extremely high concentration. Currently, the market capitalization of Samsung Electronics and SK Hynix accounts for nearly 50% of the KOSPI weight. In other words, the performance of South Korean stocks largely no longer reflects the overall South Korean economy but rather the prosperity of the global semiconductor industry and the AI capital expenditure cycle. This structure brings significant upside elasticity. When HBM is in short supply and demand for AI servers explodes, profit expectations for Samsung and Hynix are rapidly revised upward, pushing the index to new highs. However, it also means that once the market begins to question the AI capital expenditure cycle, the entire South Korean stock market will come under simultaneous pressure. More importantly, the South Korean market has formed a multi-layered leverage nesting structure. The base layer consists of heavyweight stocks like Samsung and Hynix; the second layer comprises extensive margin trading; the third layer involves leveraged ETFs; and the fourth layer includes futures and derivatives markets. Recent rebalancing of leveraged ETFs alone could generate over $3 billion in single-day passive trading demand. When the market rises, leveraged ETFs need to continuously increase risk exposure through rebalancing; when the market falls, they are forced to sell to maintain leverage ratios. This typical negative gamma effect continuously reinforces market volatility. Therefore, the South Korean market has effectively evolved into a “leveraged semiconductor call option” rather than a diversified stock market. When global risk appetite rises, it becomes the best-performing market globally; when global tech stocks correct, it quickly becomes the first to suffer a stampede. The recent circuit breaker events are a true reflection of this structural vulnerability. ## **Why Frequent Sharp Drops After Surges? Risks Are Accumulating Within the Market** On the surface, the trigger for this round of decline in the South Korean stock market was the better-than-expected US non-farm payroll data and the correction in global tech stocks. However, the real issue lies in the excessive leverage and overcrowded positions accumulated within the market. First, market participation is extremely narrow. When two stocks account for half of the index, any trading activity targeting these two individual stocks (whether buying or selling) impacts the index with nearly double the effect. This means the KOSPI is no longer a “market index” but a “Samsung & Hynix portfolio index.” Second, foreign capital is passively withdrawing. The sustained surge in the share prices of giants Samsung Electronics and SK Hynix has put many mutual funds, constrained by a “10% single-stock holding limit,” under compliance pressure. This has forced asset management institutions such as GAM and Jupiter to mechanically reduce positions as share prices continued to rise. In just the past week, foreign capital outflows from the South Korean market exceeded $12 billion. Meanwhile, South Korean retail investors continue to take the other side of the trade, using margin financing and leveraged ETFs to continuously add to their positions. Third, leveraged products amplify market volatility. The single-stock leveraged ETFs recently launched in South Korea require daily fund rebalancing. When share prices rise, funds are forced to buy; when prices fall, they are forced to sell. This mechanism essentially embeds an automatic trend-chasing program into the market. During SK Hynix’s single-day plunge, rebalancing trades by leveraged ETFs accounted for 60% of the day’s total trading volume. On some trading days, related rebalancing funds even accounted for more than 30% of total trading volume. Historical experience shows that whether it was the 2000 tech bubble, the 2007 quant fund crisis, or the 2021 meme stock frenzy, the common characteristics were high market concentration, rapid leverage expansion, and liquidity overly dependent on a single narrative. The current South Korean market possesses all three conditions simultaneously. ## **Violent Delights Will Not End Immediately, But an Era of High Volatility Has Arrived** Despite the brutal market performance, it must be clear: what collapsed is the fragile position structure, a violent clearing in a highly leveraged market, not a collapse in the fundamentals of the AI industry. Neither Nvidia, SK Hynix, nor global cloud computing providers have currently lowered their capital expenditure plans. HBM supply remains tight, and demand for AI servers is still in a high-growth phase. Therefore, from an industry cycle perspective, this AI prosperity cycle has not yet ended. However, the problem is that market pricing is far ahead of fundamentals. The biggest risk in the South Korean market currently is not earnings, but positions. If the following three signals appear in the future, caution is needed regarding a longer-cycle market adjustment: First, Samsung and SK Hynix begin to lower earnings or capital expenditure guidance; Second, foreign capital continues to flow out on a large scale accompanied by a significant depreciation of the South Korean won; Third, the scale of leveraged ETFs continues to expand while market trading volume declines. Once these situations occur simultaneously, the South Korean market may face a double compression of valuation and leverage. Overall, the biggest risk in the South Korean stock market is not the end of the AI narrative, but that the market has bet on the AI story to the extreme. When the market becomes one of the most crowded trades globally, any negative catalyst can trigger price fluctuations far exceeding fundamentals. Violent delights may not end immediately, but it is certain that the South Korean stock market has entered an era of high volatility. The key to determining the market’s direction in the future lies not in whether AI demand remains strong, but in whether the market can withstand the next round of deleveraging shock. Risk Warning and Disclaimer The market carries risks; investment requires caution. This article does not constitute personal investment advice, nor does it consider the specific investment objectives, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. 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