KOSPI sheds 25% from peak as leveraged ETFs deepen selloff

South Korea's KOSPI has entered bear territory, shedding a quarter of its value from a record high reached just weeks ago.

The KOSPI fell 8% on Monday alone to below 7,000, extending its decline to about 25% from the record closing high of 9,114.55 reached in late June. The index remains up roughly 60% this year, outpacing the 10% gain in MSCI's broadest global equities gauge.

"It's a wake-up call, both for those who are greedy and those who are fearful," said Francis Tan, chief strategist for Asia at Indosuez Wealth Management in Singapore. "If you are already overweight, this gives you a reminder that exposure to chips can be a volatile game."

The KOSPI's volatility index surged to 82.07 on Tuesday after hitting a record 97.99 on June 29, compared with 28.85 at end-2025. Samsung Electronics and SK Hynix, which together account for just over half of the index, led the decline. SK Hynix shares tumbled 14% on Monday, while a twice-leveraged ETF tracking the stock plunged more than 30% in Hong Kong. By Thursday, CSOP's 2x leveraged ETFs tracking both Samsung Electronics and SK Hynix each dropped more than 18%, signaling continued pressure on the underlying stocks.

Goldman Sachs estimated that 62% of net institutional selling in Korea stemmed from ETF-related forced liquidations, with program selling reaching $1.18 billion. The bank identified 6,800 as the KOSPI's most critical support level, with a break potentially opening a path to 6,500 or lower.

The Leverage Loop

The selloff has been amplified by a feedback mechanism unique to South Korea's market structure. When single-stock leveraged ETFs fall sharply, asset managers must sell underlying shares to maintain target leverage ratios, creating a vicious cycle of further declines. A twice-leveraged Samsung Electronics ETF and a twice-leveraged SK Hynix ETF both fell more than 30% in a single day last week, triggering additional forced selling.

The concentration risk is extreme by global standards. Samsung Electronics and SK Hynix represent just over 50% of the KOSPI, compared with Nvidia's 7% weighting in the S&P 500. That means sharp moves in either stock can overwhelm the broader index.

Foreign Exodus, Retail Leverage

Foreign investors have pulled a record of nearly $110 billion from South Korean equities this year, largely to prevent the country's soaring market value from skewing portfolio allocations. That has left domestic retail investors carrying much of the buying burden — and much of the pain.

Retail investors bought 13.2 trillion won ($8.8 billion) of KOSPI shares this month after purchasing 42.4 trillion won in June. Their borrowed investment in KOSPI shares stood at 28 trillion won on July 14, near the record 29.8 trillion won set on June 24.

"What worries me is that retailers are in the driving seat, because they use a lot of margin," said Alexander Redman, chief equity strategist at CLSA.

Despite the carnage, forward price-to-earnings ratios for Samsung and SK Hynix have actually fallen this year because earnings growth has outpaced the share price rally. Some investors remain cautious. "I like things to be depressed and to have lots of unhappiness and gloom around," said Jim Rogers, co-founder of the Quantum Fund. "That's not the case in South Korea yet."

This article is for informational purposes only and does not constitute investment advice.