After the close on Friday, we said that on Monday, Korean stocks would be a "bundle of joy"...
... and that appears to be playing out in early Asian trading, as the Kospi index crashed 8.8% just after the open, taking the key index's decline from its recent peak to nearly 17%, poised to enter a technical correction and on pace for an outright bear market (20% drop from highs) should the local plunge protection team fail to stem the collapse.
Memory maker Samsung Electronics fell as much as 11% while peer SK Hynix Inc. slid 10%.
Since these two stocks account for virtually all the recent upside in Korean stocks, levered retail investors - who were buying everything foreign investors had to sell after a record stretch of 21 days of non-stop selling...
... are having a very bad day.
The sudden plunge triggered a circuit breaker, halting trading for 20 minutes. The Korea Exchange held an emergency meeting Monday to assess rising volatility and discuss measures to ensure stable market operations.
Concerns over overheating in the AI rally combined with uncertainty in the macro environment have taken some steam out of global tech stocks over the past few sessions. Korea is seeing outsized losses after its world-beating gains, with the Kospi still up 77% since the start of the year.
As we pointed out most recently last Thursday just as the Kospi hit its all time high, foreign investors have been fleeing, selling more than $10 billion worth of Kospi shares on a net basis last week alone.
That’s put pressure on the won, with the currency touching its weakest level against the dollar since March 2009.
We warned Friday that market breadth is the central worry. Samsung Electronics and SK Hynix, enjoying AI-driven chip demand, account for 54% of the Kospi’s market weight and roughly half of the gauge’s average daily turnover in May, according to Korea Exchange data. Nearly three-quarters of its gains this year have come from the two firms.
When the benchmark hit a record on Tuesday, only 2.6% of stocks reached 52‑week highs while 31% slid to 52‑week lows
Single‑stock leveraged ETFs tied to Samsung and SK Hynix are adding to concerns.
The four most popular single-stock ETFs accounted for 21% of the total ETF turnover in South Korea in their first five sessions after launching May 27, exchange data show.
“The current market structure is vulnerable to a downturn as it’s dominated by the short gamma in the leveraged ETFs,” said Kenny Kim, chief executive officer at Meridian One Asset Management.
“The setup requires investors to chase rallies with heavy buying when the market rises, but forces them to dump shares when the market falls.”
Retail investors, once key drivers, are showing less willingness to commit fresh cash. Brokerage deposits fell to 121 trillion won ($79 billion) by May 22 from 137 trillion won on May 12, according to the Korea Financial Investment Association.
Meanwhile, margin balance hit a record 38 trillion won on May 29, up from 27.3 trillion won at end-2025, KFIA data show.
Rising margin loans alone may indicate heightened interest. But the increase, while investor deposits fall, may point to more leverage stress without fresh appetite to take on risk, according to Shawn Oh, an equity sales trader at NH Investment & Securities.
“The signal is clear: the cash buffer eroding while active leverage refuses to unwind,” he added.
The South Korean market faces risk of a “Black Monday” event with “currency instability, interest-rate repricing and profit taking in semiconductors all happening at the same time,” said Kim Doo-un, an analyst at Hana Securities.
The government on Sunday laid out a series of targeted measures to try and bolster the won, pledging firm action against speculative trading and other activities. The moves come as policymakers across Asia step up efforts to support their currencies amid rising energy costs and a stronger dollar stemming from the Iran war.
Finally, there is a silver lining for some as Korea's loss is crypto's gain...
...for now.