South Korea $2 trillion stock rout breaks records as SK H…

South Korean stocks faced a significant downturn, with the KOSPI index dropping as much as 12.6% due to a selloff stemming from leveraged trading. The index closed down 6%, marking a record monthly decline. Leading chipmaker SK Hynix reported a six-fold profit increase but fell short of expectations, causing its shares to drop 9.6%. The selloff has erased nearly 40% of the index's value from its recent peak. Finance Minister Koo Yun-cheol apologized for the introduction of leveraged ETFs, which some blame for exacerbating the situation, and announced plans for regulatory reviews to stabilize the market.

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SK Hynix's reports bumper results but falls short of expectations

Summary
Companies
KOSPI down as much as 12.6%, triggering 20-minute trading halt
SK Hynix plummets 9.6% after missing analyst expectations; Samsung plunges 5.2%
Unwinding of leveraged trades blamed as finance minister apologises before parliament

SINGAPORE/SEOUL, July 29 (Reuters) - South Korean stocks plunged for a second straight session on Wednesday as Asia's once-blazing AI rally morphed into a brutal market reckoning, wiping as much as $2.18 trillion from Seoul’s equity market and leaving leveraged retail investors reeling.

The benchmark KOSPI (.KS11), opens new tab ‌index dived as much as 12.6% before trimming some losses to close down 6%, extending Tuesday's near-11% rout and putting the market on course for its steepest monthly decline on record. The slide has erased almost 40% of the index's value from a peak reached little more than a month ago.

Volumes were light, suggesting buyers have evaporated from what just weeks ago was the hottest trade in global markets — buying the chipmakers raking in cash from AI investment.

Much of that buying was done by small-time investors using borrowed money to increase their exposure, and that dynamic, which accelerated the rally, is exacerbating the selloff as brokers forcibly shut down losing positions.

Under pressure from lawmakers during a parliamentary session, Finance Minister Koo Yun-cheol apologised for the introduction of single-stock leveraged ETFs, ⁠saying they had not been considered carefully enough. He added that the government is reviewing market stabilisation measures, including adjusting regulation related to the funds, which some analysts have blamed for increasing the amount of leveraged trading in the Seoul bourse.

Koo, the governor of the Bank of Korea, and the heads of financial regulators met late on Wednesday to discuss the situation. The meeting came two weeks after their last meeting on July 16 when they announced tighter regulations to cool the ETF investment boom.

In a statement after the meeting, the finance ministry said it would immediately pursue further curbs on single-stock leveraged products, including individual investment limits — citing a cap of up to 20% of an investor's total investment amount as an example — higher trading costs to deter excessive activity and simulated trading requirements.

It will also prepare a legal basis for emergency market-stabilisation steps.

"It's certainly a very crowded trade which is being unwound," said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong.

"If you look at what is falling in the market, it has been the stocks in which you have the most leverage," he said. "It's very difficult to say when will this selloff end, but at the moment, it's definitely not the ‌trade where we ⁠want to be."

Item 1 of 3 Currency dealers work as an electronic board displays the exchange rate between the U.S. dollar, the Korea Composite Stock Price Index (KOSPI), South Korean won and the Korea Securities Dealers Automated Quotations (KOSDAQ) at the dealing room of a bank in Seoul, South Korea, April 8, 2026. REUTERS/Kim Soo-hyeon

[1/3] Currency dealers work as an electronic board displays the exchange rate between the U.S. dollar, the Korea Composite Stock Price Index (KOSPI), South Korean won and the Korea Securities Dealers... Purchase Licensing Rights, opens new tabRead more

Even blockbuster earnings from SK Hynix (000660.KS), opens new tab, which reported a six-fold jump in profit, failed to stem the panic as the results lagged lofty expectations. The chipmaker's shares slumped nearly 20% before recovering some ground, closing down 9.6%, while Samsung Electronics (005930.KS), opens new tab fell as much as 14% before trimming losses to 5.2%.

U.S.-listed shares of SK Hynix fell 5.9% in premarket trading.

Together, the two chip giants account for more than half of the KOSPI’s market value and have exerted substantial influence over the market this year as traders seek a slice of the lucrative AI trade amid a shortage of advanced memory chips.

"Hopes of the market rebounding today after a 10% plunge yesterday faded, ⁠triggering panic selling and forcing most stock investors to book losses," said Han Ji-young, an analyst at Kiwoom Securities. "Doubts are prevalent in the market that the current index level would not be the bottom."

Semiconductor stocks across Asia took a beating. Shares in Taiwan's TSMC (2330.TW), opens new tab, the world's biggest contract chipmaker, fell 3.5% in Taipei, while UMC (2303.TW), opens new tab, another Taiwanese chip foundry, fell 9.7%. In Tokyo, Kioxia (285A.T), opens new tab, a Japanese memory chipmaker, plunged 13.9%.

“There was definitely signs of panic and forced ⁠unwind in Asia technology today, not only on the long side, but also on the short side in Japan where you saw heavily out of favour names such as Nintendo and Sony rallying very strongly to compound the pain," said Jon Withaar, a senior portfolio manager at Pictet Asset Management in Singapore.

"The fast money market is keen to derisk ahead of key hyperscaler earnings as well as the ⁠upcoming Fed rate decision, where whispers of a hike in recent days have added to the unwind urgency."

Despite the tumble, the KOSPI is up 41.5% in U.S. dollar terms year-to-date, making it the best-performing major market this year.

"Today's price action suggests that the leverage within Korean equities remains high and a further unwind could be expected," said Asia-Pacific macro strategist Wee Khoon Chong at BNY in Hong Kong.

($1 = 1,451.9000 won)

Reporting by Gregor Stuart Hunter, Rae Wee, Jihoon Lee and Ankur Banerjee; Additional reporting by Joyce Lee; Editing by Christopher Cushing, Subhranshu Sahu and Shri Navaratnam

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Gregor Stuart Hunter

Thomson Reuters

Gregor Stuart Hunter is a correspondent reporting on breaking news on finance and markets in Asia, based in Singapore. During prior postings in Hong Kong, Taipei and Abu Dhabi, Gregor previously worked for Bloomberg News and The Wall Street Journal, and wrote for The Guardian, Monocle and Fortune, among others. He is a CFA Charterholder.

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