$19 Billion AI Chip ETF Bet Crashes, Triggering Korea’s Deepest KOSPI Slide Since 2008

When South Korean retail investors rushed into leveraged exchange‑traded funds (ETFs) tied to AI‑focused memory chipmakers, they were chasing double‑daily returns – and double‑daily losses. Within weeks, the strategy erased roughly $1.59 trillion of market value, sending the KOSPI down a third since June, the steepest decline since the 2008 financial crisis.

From mid‑2025 to July 2026, more than $19 billion poured into single‑stock leveraged ETFs that tracked Samsung Electronics and SK Hynix, the two heavyweight constituents of the index. Bloomberg data shows SK Hynix‑linked products alone attracted $10.8 billion, more than twice the total inflow to Samsung‑related funds. The timing proved disastrous: a rapid AI‑driven rally in memory chips peaked in early June, then reversed, dragging the broader semiconductor sector into a sell‑off.

The fallout was immediate. Brokers were forced to liquidate roughly $1.4 billion of retail positions across June and July – the two heaviest liquidation months of the year. Margin loans fell to 27.4 trillion won ($19.3 billion), the lowest level recorded in 2026, echoing global concerns about record‑high margin debt. In response, regulators tripled the minimum deposit for these products to 30 million won (about $21,700) and froze new listings while banning promotional ads. Daily trading volume in the seven leveraged SK Hynix ETFs collapsed by 90%, falling below 100 million shares.

Finance Minister Koo Yun‑cheol publicly apologized in parliament on July 29, acknowledging that the products had been approved without sufficient scrutiny. Morgan Stanley, which recently upgraded South Korean equities, estimates that more than half of the deleveraging process is already complete, but foreign investors remain wary. They dumped a record $30 billion in June and have withdrawn another $10 billion since, underscoring a loss of confidence in the market’s stability.

Retail sentiment has shifted outward. Small‑scale traders, often called “ants,” redirected $4.6 billion into U.S. equities in July – a five‑fold increase from June and the first time overseas buying outpaced domestic purchases since February. The government’s tax incentives, intended to retain capital, failed to stem the outflow, and accounts recorded their first monthly net outflow in July.

Compounding the equity shock, the Bank of Korea (BOK) signaled a more hawkish stance. Senior Deputy Governor Ryoo Sang‑dai warned that further rate hikes are likely, following a quarter‑point increase to 2.75% in July – the first rise since January 2023. He cited solid growth backed by unprecedented income gains, but also persistent inflation above the 2% target and rising financial‑stability risks.

What does this mean for the broader economy? First, the crash highlights the perils of retail leverage in a market dominated by a few mega‑cap stocks. Second, the regulatory clamp‑down illustrates a shift toward tighter oversight of high‑risk products, a trend mirrored in other jurisdictions after similar ETF scandals. Third, the BOK’s potential rate hikes could deepen the pain for borrowers, especially those still carrying margin‑linked debt.

Looking ahead, the KOSPI now trades at a record‑low 5.1 times forward earnings, a valuation that may attract value‑oriented investors if confidence returns. However, the lingering mistrust among both domestic and foreign participants suggests that any rebound will be cautious and contingent on clearer regulatory frameworks and a stable monetary policy path.