In immediately’s Finshots, we clarify why South Korea’s large AI growth became market turmoil, and what occurs when a crowded technological commerce meets heavy leverage.
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Now onto immediately’s story.
The Story
For some time, the unreal intelligence commerce seemed nearly not possible to lose. International buyers poured billions of {dollars} into firms supplying the superior chips, specialised reminiscence, and large computing infrastructure required to energy the AI economic system.
And in Asia, South Korea grew to become the quintessential proxy for this world commerce. The nation is house to Samsung Electronics and SK Hynix, two of the world’s premier high-bandwidth reminiscence (HBM) producers. HBM, for the uninitiated, is a specialised kind of reminiscence that sits alongside AI processors and permits them to entry an enormous quantity of knowledge at extraordinarily excessive speeds, making it vital for coaching LLMs and operating superior AI fashions. As demand for AI computing exploded, so did the demand for HBM, turning Samsung and SK Hynix into two of the world’s largest beneficiaries of the AI growth.
Because of this, their mixed market capitalisation of 2494 trillion gained (978 billion gained – SK Hynix and 1516 billion gained – Samsung Electronics) makes up roughly half of South Korea’s benchmark KOSPI index.
Sidebar: Received is South Korea’s forex. 1 USD = 1407 gained as of August 8, 2026.
So, buyers piled into the commerce, and the cash adopted. The KOSPI surged from round 3,000 to greater than 9,000 factors from June 2025 to June 2026, with Samsung Electronics and SK Hynix doing a lot of the heavy lifting.
However the rally additionally created a brand new drawback. The extra these shares went up, the extra engaging they grew to become to buyers who wished to amplify their returns with borrowed cash.
Then, in Might, South Korea made it even simpler to wager on the AI commerce. The Korea Change launched single-stock leveraged ETFs monitoring Samsung Electronics and SK Hynix. These merchandise promised roughly twice the every day motion of the underlying shares, so a 5% rise in SK Hynix might translate right into a roughly 10% achieve for the ETF. And buyers got here dashing in.
And this wasn’t only a Korean retail-investor drawback. A remarkably related episode performed out in Silicon Valley, the place former OpenAI researcher Leopold Aschenbrenner’s AI-focused hedge fund, Situational Consciousness, noticed its over 400% returns quickly collapse when AI shares reversed.
To know why that issues, think about you’ve ₹100 and wish to purchase ₹500 value of shares. You borrow the remaining ₹400 out of your inventory dealer. If the shares rise 10%, your ₹500 place turns into ₹550. Then, as soon as the commerce is finished, you come back the ₹400 to your dealer, and you’ve got made a ₹50 revenue (minus curiosity paid to your dealer), which suggests your gross return is 50% on the ₹100 though the inventory itself rose by solely 10%.
However right here’s the factor. This math cuts each methods. If the inventory falls by 10%, the funding drops to ₹450, wiping out half of your unique capital, whereas a 20% decline erases your money solely. It is because with ₹100 of your personal cash controlling a ₹500 place, each 1% transfer within the inventory creates roughly a 5% transfer in your fairness. So whereas a ten% rise produces a 50% return, a 20% fall wipes out your total ₹100 funding.
So, to stop this, there’s one thing referred to as a ‘margin name’.
A dealer doesn’t lend you ₹400 just because it trusts that you’ll ultimately make cash. Your shares act as collateral, and you might be required to keep up a minimal quantity of your personal capital in opposition to the place.
If the worth of the shares falls far sufficient, the dealer can demand that you just put in extra money. That demand out of your dealer is the “margin name.”
When you can not present the money, the dealer can promote your shares to get well its cash.
Now think about 1000’s of buyers holding the identical inventory with borrowed cash. The inventory falls, brokers problem margin calls, and buyers who can not present more money begin promoting.
That promoting pushes the inventory down additional, which triggers extra margin calls, which creates much more promoting. So, a superbly peculiar correction can subsequently flip into one thing a lot worse as a result of buyers are now not deciding whether or not they wish to promote. They’re being pressured to.
And South Korea supplied a dramatic illustration of simply how violent that course of can develop into. The KOSPI triggered its market-wide circuit breaker six occasions in 2026 alone, which is as many occasions because it had been triggered in complete from its introduction as much as the top of 2025. The market additionally recorded a file 34 sidecar activations, each of which briefly halt program buying and selling when markets transfer sharply.
Now, keep in mind the leveraged ETFs we spoke about earlier? They made issues worse.
Let’s take the KODEX SK Hynix 2X leveraged ETF, for example.
This was designed to ship twice the ‘every day return’ of an underlying inventory. If SK Hynix rises 5% in a day, the ETF rises roughly 10%. But when SK Hynix falls 5%, the ETF falls 10%.
However to keep up that 2x publicity, the fund has to continuously alter its positions utilizing SK Hynix shares and derivatives. That creates an vital suggestions loop. When SK Hynix rises, the fund wants extra publicity. When SK Hynix falls, it has to cut back publicity. And when 1000’s of buyers are concurrently buying and selling merchandise linked to the identical underlying inventory, these changes can add one other layer of shopping for and promoting to an already burdened market.
The size grew to become extraordinary. Inside only a month, leveraged and inverse ETFs linked to Samsung and SK Hynix attracted over 7 trillion won. That meant a product designed to amplify a inventory’s every day motion had itself develop into a serious supply of buying and selling exercise within the underlying shares.
There’s additionally a much less apparent drawback with leveraged ETFs that buyers typically miss. When an ETF guarantees twice the every day return, that doesn’t imply it can ship twice the return of the underlying inventory over an extended interval. So, if a inventory falls 10% someday after which rises 10% the following. You may assume it has recovered as a result of the share strikes look symmetrical, nevertheless it has really fallen from ₹100 to ₹90 after which risen to ₹99. The leveraged ETF follows the identical path, with twice the every day actions, so compounding can depart buyers with a fair bigger loss. That is why these merchandise are designed primarily as short-term buying and selling devices slightly than easy long-term bets on an organization’s future.
And that brings us again to the AI growth.
The KOSPI, which had climbed to round 9,100 gained at its peak, subsequently fell sharply to round 6,300 gained because the AI commerce started to unwind and leveraged positions have been pressured out of the market.
Nonetheless, there’s nothing inherently unsuitable with investing in Samsung, SK Hynix or the semiconductor business. AI might very nicely proceed driving monumental demand for reminiscence, computing energy and data-centre infrastructure. The issue begins when 1000’s of buyers arrive on the similar conclusion on the similar time after which begin borrowing cash to precise that view extra aggressively.
At that time, the funding thesis adjustments. You’re now not merely betting that AI will remodel the economic system over the following decade. You’re additionally betting that AI shares will hold rising tomorrow, subsequent week and subsequent month, as a result of in the event that they fall sharply earlier than your thesis has had time to play out, your dealer might not provide the luxurious of ready.
That’s primarily what the Aschenbrenner episode demonstrated. His broader thesis about AI didn’t develop into nugatory as a result of the market fell. The issue was that the construction of the commerce couldn’t face up to a pointy reversal. As soon as losses grew to become massive sufficient, leverage turned a short lived market decline right into a pressured liquidation.
South Korea’s expertise provides the identical lesson at a market-wide stage.
Nonetheless, the excellent news is that South Korea has already began attempting to unwind a few of this leverage. Regulators have suspended new listings of single-stock leveraged ETFs and raised the money requirement for buyers, whereas policymakers have been contemplating further restrictions as they assess how these merchandise have an effect on market stability. The measures counsel that authorities recognise the issue earlier than it turns into much more deeply embedded out there.
And for us retail buyers, this episode provides a transparent playbook for figuring out harmful trades earlier than they implode: look out for spiking margin debt, excessive inventory focus, and spinoff buying and selling volumes that outstrip underlying market exercise.
And asking who’s shopping for with borrowed cash can reveal whether or not the rally really represents real long-term development or a fragile skyscraper constructed on leverage.
Till then…
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