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AI Rally Sours: South Korean Stocks in Record Plunge
29 Jul
Summary
- KOSPI index experienced a record two-day fall, dropping over 40% from its peak.
- Small investors using borrowed money are exacerbating the sell-off.
- Government is reviewing market stabilization measures, including leveraged ETFs.
South Korean stocks experienced a dramatic second consecutive day of sharp declines on Wednesday, marking a historic rout for the AI-fueled rally. The benchmark KOSPI index plummeted significantly, tracking a potential record two-day fall and a substantial drop from its recent peak. This sell-off is largely attributed to small investors who had amplified their exposure using borrowed funds.
The concentrated buying in AI chipmakers, which had propelled the market, has evaporated, leading to panic selling. Stocks like SK Hynix and Samsung Electronics, which represent a significant portion of the KOSPI's market capitalization, saw substantial drops despite strong earnings reports. This situation has raised concerns about the market's bottom and the high level of leverage within Korean equities.
In response to the escalating volatility, the South Korean government announced it is reviewing market stabilization measures. These measures include potential adjustments to regulations surrounding single-stock leveraged ETFs, which some analysts believe contribute to the market's instability. The rapid unwinding of leveraged positions continues to exert downward pressure on the market.
