South Korea's stock market has suffered one of its sharpest selloffs in years, with the KOSPI plunging nearly 10% intraday to 5,430.67, breaking below the key 5,500 level. The index has now fallen around 40% from its June record high, wiping out months of gains in just weeks.
The biggest casualties were the country's semiconductor giants. SK Hynix tumbled more than 15%, while Samsung Electronics lost over 10%, triggering widespread liquidation across the broader market.
Many investors are now questioning whether government policies helped fuel the rally before making the downturn even more severe.
Earlier this year, South Korea's Ministry of Economy and Finance and financial regulators introduced measures intended to support the equity market, including expanding access to leveraged ETFs and encouraging greater investor participation. As leverage increased, capital flowed aggressively into momentum trades, especially AI- and semiconductor-related stocks that dominated the KOSPI.
The result was an increasingly fragile market. With Samsung Electronics and SK Hynix representing a substantial portion of the index, heavy selling in just these two stocks quickly spread across the entire market. As the global AI hardware sector entered a deleveraging cycle, margin calls and forced liquidation accelerated the decline, turning a correction into a broad-based selloff.
Ironically, after policies aimed at stimulating market participation during the rally, authorities are now trying to prevent the market from falling further. Investors are closely watching for stabilization measures, liquidity support, or additional regulatory actions to restore confidence.
Perhaps the most striking development is that strong corporate earnings have not been enough to support the market. Despite record or near-record profits from some of Korea's largest technology companies, investors remain focused on deleveraging, risk reduction, and weakening sentiment rather than fundamentals. When leverage unwinds, even excellent earnings can struggle to stop a market-wide decline.
The Korean market is now facing a painful reality: leverage can magnify gains during a bull market, but when sentiment reverses, it can amplify losses just as quickly.
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