Korean Investors Face Significant Losses as AI Stock Bubble Bursts
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Korean Investors Face Significant Losses as AI Stock Bubble Bursts
- South Korean retail investors have experienced substantial losses, with some portfolios showing over 60% paper losses, as the Kospi index recorded a nearly 40% decline from its June peak.
- The downturn follows a rapid surge in AI-linked equities, particularly Samsung Electronics and SK Hynix, and has prompted South Korean Finance Minister Koo Yun-cheol to apologize for the introduction of single-stock leveraged ETFs.
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South Korean retail investors are grappling with significant financial distress following a sharp downturn in AI-related stocks, particularly those of semiconductor giants Samsung Electronics and SK Hynix. The Kospi index, a key benchmark, has plummeted by nearly 40% from its peak in June, leading to “unprecedented” losses for many individual investors. Some investors have reported paper losses exceeding 60% of their portfolios.
This market correction comes after a period of intense speculation, where millions of South Korean retail investors, many using margin loans and leveraged exchange-traded funds (ETFs), heavily invested in AI-linked equities, driving the Kospi to a nearly 180% surge over approximately ten months after late 2025. Samsung and SK Hynix, which together constitute almost half of the Kospi, were central to this rally.
The recent sell-off has been swift and severe. In just two days, the Kospi shed about 16%, reaching its lowest point since early April. On July 29, the index plunged as much as 12.6%, extending an almost 11% fall from the previous day, marking its steepest monthly decline on record. This volatility led to the activation of “circuit breakers” on the Korea Exchange, halting trading multiple times.
Concerns about over-investment in the AI sector, disappointing second-quarter earnings from SK Hynix, and increased competition from Chinese chipmakers are cited as contributing factors to the market’s decline. In response to the crisis, South Korean Finance Minister Koo Yun-cheol issued an apology for the approval of single-stock leveraged ETFs, acknowledging they had not been carefully considered. The government is now reviewing market stabilization measures and has moved to limit access to these leveraged ETFs.