South Korea's $4.9 trillion stock market is beginning to show signs of exhaustion after a globally celebrated surge.
On Friday, the Kospi index plummeted as much as 7%, with Samsung Electronics Co Ltd and SK Hynix Inc both falling sharply. This extreme movement highlights significantly heightened market volatility. Due to futures selling pressure, the exchange temporarily halted program sell orders, a type of trading suspension that has become increasingly frequent this year.
Concentration of Gains Poses Risk
Through Thursday, the Kospi had soared more than 100% year-to-date, but the gains have been heavily concentrated in the two aforementioned chip giants. This makes the market vulnerable to a sudden loss of momentum in AI-related trading. Retail investor participation has also cooled, while a sharp increase in margin financing faces the risk of interest rate hikes from the Bank of Korea. Analysts note that the growing popularity of leveraged exchange-traded funds (ETFs), designed to amplify daily market movements, could further exacerbate any market pullback.
"Valuations in some parts of the AI ecosystem have become elevated," said Jung In Yun, CEO of Fibonacci Asset Management Global. "Short-term volatility may remain high, but we don't believe this signals a change in the overall trend."
Narrow Market Breadth a Core Concern
Inadequate market breadth is currently the most critical underlying concern. According to Korea Exchange data, benefiting from AI-driven chip demand, Samsung Electronics and SK Hynix together account for 54% of the Kospi's market capitalization and roughly half of its average daily trading volume in May. Nearly three-quarters of the Kospi's gains this year have come from these two firms.
Single-stock leveraged ETFs tied to Samsung Electronics and SK Hynix are also deepening market anxieties. Exchange data shows that in the first five trading days after their May 27 listing, the four most popular single-stock ETFs accounted for 21% of total ETF turnover in South Korea.
Investor Enthusiasm Cools
Foreign investors have been persistent sellers, with net sales of Kospi stocks reaching 15.8 trillion won (approximately $102 billion) in June alone. Reasons include profit-taking and portfolio adjustments due to single-stock ownership limits.
Retail investors, once the primary market driver, are also increasingly reluctant to commit new capital. Data from the Korea Financial Investment Association (KFIA) shows that investor deposit balances at brokerages fell to 121 trillion won (about $790 billion) on May 22, down from 137 trillion won on May 12.
Rising Leverage Adds Pressure
Concurrently, margin balance climbed to a record high of 38 trillion won on May 29, up from 27.3 trillion won at the end of 2025. KFIA data indicates that margin debt continues to rise rapidly.
An increase in margin loans by itself could reflect heightened investor interest. However, NH Investment & Securities equity sales trader Shawn Oh points out that with investor deposits at brokerages declining while margin debt keeps rising, it may indicate the market is under greater leverage pressure without a fresh willingness to take on risk.
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