- South Korea's KOSPI index fell sharply on Monday, catching up with losses in its regional peers following a long weekend as local memory chip stocks remained on the backfoot.
- The index reversed early gains and fell 4.3% to 6,520.66 points, remaining close to a three-month low and in a bear market entered earlier in July.
- Samsung Electronics Co Ltd and SK Hynix Inc were the worst performers on the index, falling 4.1% and 3.5%, respectively.
- The two tracked losses in broader chipmaking stocks from last week, after blowout earnings from TSMC failed to stem a rout in the sector.
- Markets sold chipmaking stocks wholesale in recent weeks, locking in profits in the high-flying sector amid rising questions over whether their stellar, artificial intelligence-fueled growth will be sustainable in the coming quarters.
- Concerns over stretched AI-fueled valuations and rising capital expenditures on the industry also spurred caution, as did growing uncertainty over U.S. interest rates.
- Lee Seung-ho watched the nearly 300 million won ($202,515) stock trading fortune he built with a 500% margin loan evaporate in just four weeks in May.
- Lee's ability to take on a 500% margin loan, and the spectacular boom-and-bust that followed, captures the risks at the heart of South Korea's deeply leveraged retail investing culture.
- According to the Korea Financial Investment Association, margin loan balances in the domestic stock market reached 38.63 trillion won on June 24, the highest level on record.
- Broader Bank of Korea data showed total investor debt surpassed an unprecedented 60 trillion won at the end of May, coinciding with the transformation of the $4.1 trillion stock market into the world's hottest - and most volatile.
- Authorities moved to cool the speculative fever, announcing a ban on new listings of leveraged exchange-traded funds tied to individual stocks.
- 'The FSS Governor has already said these products were approved too hastily, so this is a correction of a known policy error,' said Inki Cho, a senior financial market strategist at online trading platform Exness.
South Korea's KOSPI index dropped 4.3% to 6,520.66 points, nearing a three-month low, as memory chip stocks like Samsung and SK Hynix fell 4.1% and 3.5%, respectively. This decline follows a broader sell-off in chipmaking stocks amid concerns over AI valuations and rising interest rates.123
The market's volatility has been exacerbated by a surge in margin loans, with balances reaching 38.63 trillion won by June 24, the highest on record. Total investor debt surpassed 60 trillion won at the end of May, coinciding with the stock market's transformation into the world's hottest and most volatile.910
Lee Seung-ho, a 24-year-old university student, experienced a dramatic rise and fall in his trading fortune, turning 20 million won into 300 million won through a 500% margin loan, only to see it evaporate in weeks. He described the experience as so stressful that he said, 'I literally could not breathe.'78
Regulators are now sounding alarms over the risks associated with leveraged trading, with the Financial Supervisory Service recently banning new listings of leveraged exchange-traded funds tied to individual stocks. 'The risk is asymmetric: the leverage accelerates losses on the downside far faster than it builds wealth on the upside in a volatile tape like this.'
“Margin loan balances in South Korea's domestic stock market reached a record 38.63 trillion won in late June, while total investor debt surpassed 60 trillion won. Authorities responded by banning new listings of leveraged ETFs tied to individual stocks, with a regulator calling the earlier approval a 'policy error'.”
