South Korea’s small investors bet $19 billion on leveraged AI chip funds. Months later, the trade has collapsed. The KOSPI crash erased a third of the index since June, the deepest slide since the 2008 global financial crisis.

About $1.59 trillion in market value 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 more rate hikes.

How the KOSPI Crash Wiped Out a $19 Billion Leveraged Bet

Leveraged single-stock exchange-traded funds (ETFs) double one stock’s daily move. Gains land twice as fast. So do losses.

Since mid-2025, investors poured over $19 billion into such funds tracking memory chipmakers. Bloomberg figures show SK Hynix products alone drew $10.8 billion. That is more than double Samsung’s total.

The timing was brutal. Sixteen of these ETFs tied to Samsung and SK Hynix listed in Seoul on May 27. Weeks later, the AI-driven memory rally reversed, feeding a broader memory chip selloff.

A Hong Kong fund offering twice SK Hynix’s daily return has plunged 86% from its June peak.

Forced Selling, a Late Crackdown, and an Apology

The crash forced brokers to dump clients’ holdings. Roughly $1.4 billion in retail positions were force-sold across June and July, exchange data shows.

Those were the two heaviest liquidation months this year. Margin loans have sunk to 27.4 trillion won ($19.3 billion), the lowest level of 2026. The squeeze echoes wider warnings about record margin debt in global markets.

Regulators tripled the minimum deposit needed to trade the products to 30 million won ($21,700) from July 31. They also froze new listings and banned ads.

Daily volume across the seven leveraged SK Hynix ETFs then collapsed 90% to under 100 million shares. The leveraged ETF crackdown came only after regulators approved the products near the market’s peak.

Finance Minister Koo Yun-cheol apologized in parliament on July 29 for approving them without enough scrutiny.

Morgan Stanley, which recently upgraded South Korean equities, estimates the deleveraging is more than halfway done. Foreign investors are not convinced. They dumped a record $30 billion in June and more than $10 billion since.

Retail Money Flees to Wall Street as the BOK Turns Hawkish

Korea’s small traders, nicknamed “ants,” are voting with their wallets. They bought $4.6 billion of US stocks in July, five times June’s pace, Reuters reported. Overseas buying beat domestic buying for the first time since February.

Government tax breaks were meant to keep that money at home. Instead, the accounts saw their first monthly outflow in July.

Rate policy could deepen the pain. BOK Senior Deputy Governor Ryoo Sang-dai said Tuesday that more hikes are likely. July’s quarter-point rise to 2.75% was the first since January 2023.

“Growth is expected to remain solid on the back of unprecedented income growth, while underlying inflationary pressures persist and financial stability risks could increase,” Ryoo made the remarks at a Seoul briefing, noting July consumer prices rose 2.8%, above the central bank’s 2% target.

The leverage has unwound. Trust has not recovered. With the KOSPI at a record-low 5.1 times forward earnings, bargain hunters may yet return. For now, the BOK’s August 27 rate decision is the market’s next test.

Source: BeInCrypto