The South Korean stock market took a brutal hit, dropping about $2.18 trillion in just two days. The KOSPI index plunged sharply on July 28 and 29, with one day seeing an intraday slide of 12.6% before closing down 6%. The previous day had already seen an 11% fall, shaking investor confidence hard.
The root of the turmoil lies in the unraveling of the AI stock frenzy, particularly hitting semiconductor giants Samsung Electronics and SK Hynix. These companies had been the heart of the rally this year, pushing the KOSPI to a 41.5% gain in US dollar terms before the crash. Now, the index trades nearly 40% below its recent peak from little over a month ago.
Retail investors, known locally as “ants,” have been heavily leveraged in single-stock ETFs tied to these semiconductor names. As the market turned, margin calls forced brokerages to liquidate positions swiftly, locking in massive losses for many individual investors. This cascade triggered multiple trading halts across the year, highlighting the extreme volatility.
Government Steps In Amid Growing Backlash
Finance Minister Koo Yun-cheol publicly apologized and announced plans to clamp down on leveraged ETFs, proposing a 20% cap on such investments within individual portfolios and raising trading fees for retail traders. These moves coincide with South Korea’s already strict crypto regulations, further tightening controls on high-risk financial products.
The crackdown aims to shield ordinary investors from the wild swings that have wiped out billions in value so quickly. The fallout extends beyond stocks, with potential implications for crypto traders navigating complex regulatory landscapes, as seen in South Korea’s crypto tax rules.
This article is for informational purposes and does not constitute financial advice.
