Leveraged Kospi Selloff Triggers 10% China Tech Drop
A heavily leveraged selloff in South Korean technology stocks has pushed the Kospi into a bear market, dragging China’s tech sector down as investors fear a repeat of 2015’s market crash.
The South Korean stock market has fallen into a technical bear market, with the Kospi dropping 20 per cent from its record high last month. The rapid decline follows a 116 per cent surge earlier this year that briefly made South Korea the world’s sixth-largest equity market. Unwinding leveraged positions has driven severe volatility and triggered multiple trading halts.
The selloff is rooted in record retail speculation. Outstanding leveraged bets reached 29.2 trillion won (US$19.7 billion) in early July. Investors used debt to buy single-stock exchange-traded funds linked to Samsung Electronics and SK Hynix, seeking exposure to the artificial intelligence boom.
Market sentiment shifted sharply after the Korean government signalled it would intervene to contain the crisis. This move revived memories of Beijing's heavy-handed response to its own market meltdown nearly a decade ago.
The fallout is already crossing borders into China. The tech-centric Star Market 50 Index retreated more than 10 per cent over the past two weeks. Because South Korea dominates the global memory-chip market, its stock turbulence directly impacts the broader AI trade in China and other major equity markets.
Analysts draw explicit parallels between the current Kospi chaos and China’s 2015 boom-to-bust cycle. A decade ago, record margin debt and a retail frenzy inflated a stock bubble in China. When the government intervened, the market deflated, ultimately wiping US$5 trillion from Chinese equities within months.
"South Korean stocks may become an amplifier of sentiment on global technology stocks, given the high leveraged levels," said Jin Qianjing, an analyst at Shenwan Hongyuan Group. "The market may face a double whammy of high leverage and an exodus of foreign capital in the short term."
For global investors, the Kospi's reversal serves as a warning about concentrated, debt-fuelled bets on AI hardware. If foreign capital continues to exit South Korea, the downward pressure on semiconductor valuations could weigh heavily on global tech portfolios.
