South Korea’s AI-fueled stock boom is turning into a cautionary tale of what happens when leverage becomes a more powerful market force than the fundamentals.
SK Hynix Inc.’s record 15% plunge Monday compelled managers of leveraged products tied to the country’s chipmakers to sell billions of dollars of stock, transforming what began as a global reassessment of AI valuations into a market rout. The selling helped deepen a 25% slide in the Kospi in just three weeks, exposing how margin loans, single-stock leveraged exchange-traded funds and concentrated index weightings can feed on one another, amplifying swings in both directions.
The dynamics are increasingly being watched well beyond Seoul. Korea sits at the center of the AI hardware supply chain, with SK Hynix and Samsung Electronics Co. making up over half the Kospi index. Now that SK Hynix also trades in US time via American depositary receipts, investors say sentiment can bounce between Wall Street and Asia around the clock, raising the risk Korea’s leverage-fueled volatility becomes global.
That feedback loop played out on Wednesday as the Kospi index jumped more than 6%, buoyed by a rebound in SK Hynix shares following a 27% rally in its ADRs.
