“World’s Craziest Stock Market” Takes a Wild Ride, WSJ Says of Korea

The South Korean stock market, driven by an artificial intelligence boom, saw a staggering 40% decline within a six-week span, earning The Wall Street Journal's description as a "fright ride." South Korea's KOSPI index more than tripled over the previous year, reaching over 9,000 in June, but quickly reversed course due to concerns over AI demand and heightened competition from Chinese chipmakers.

Nearly $2.5 trillion in market value was erased during this six-week period, with retail investors accounting for 60% to 70% of daily trading. Many retail investors, or FOMO-driven buyers, were caught in the selloff, losing significant portions of their investments. Single-stock leveraged ETFs, which doubled the daily performance of individual stocks like Samsung Electronics and SK hynix, were identified as a major contributor to market volatility.

These products attracted substantial demand when they debuted, but they also amplified losses when the underlying stocks fell. The government faced criticism for permitting such high-risk investments, with some investors even sending funeral wreaths to the National Assembly in protest. President Lee Jae Myung's approval rating plummeted to a post-inauguration low of 43.3%.

In response to mounting losses, financial authorities tightened regulations, suspending approvals for new single-stock leveraged products and raising the required deposit for trading them to about $21,000. Despite the turmoil, some overseas investors, like AI-focused hedge fund Situational Awareness, reported significant losses on their SK hynix investments and liquidated most of their holdings to repay loans. The volatility has extended beyond Korean retail investors, impacting global investors as well.