South Korea's AI Memory Bubble: Over 300,000 Accounts Face Forced Liquidation in Leveraged ETF Collapse

On July 20, 2026, Reuters reported the story of a South Korean university student, which epitomized the frenzy and collapse experienced by South Korea’s stock market. Lee Seungho, a 24-year-old, saved 20 million won (approximately $20,000) while serving his military duty and invested it in the stock market with 5x leverage. His portfolio soared to nearly 300 million won at one point, but market fluctuations over a few weeks triggered forced liquidations by his brokerage, wiping out all profits and even eroding his principal. “I feel like I can’t breathe,” Lee said, yet he expressed his intention to save up again and re-enter the market with leverage. With Seoul’s average apartment price equivalent to about 14 years of his salary, the 5x leverage seemed like a way to “shorten that 14 years.”

Lee’s story symbolizes the turning point in South Korea’s stock market, as reported by Tiger Sniff Network’s Yuanchuan Investment Review. During the first half of 2026, the KOSPI index more than doubled, making it the best-performing index among global stock markets. The massive profits reaped by Samsung Electronics and SK Hynix, driven by booming AI memory demand, led South Koreans to pour their savings and loans into the stock market. However, what began as “the best summer of adulthood” for many turned into a tragedy by summer’s end, with one in 30 South Korean adults receiving margin call notices.

Regulatory Loosening Sparks a Bubble

The South Korean financial authorities’ rush to introduce leveraged products stemmed from a strong sense of urgency over capital outflows. Leveraged ETFs targeting Samsung Electronics and SK Hynix were already available in the U.S. and Hong Kong markets, easily accessible to South Korean investors via smartphone apps. To counteract the capital outflows that were exerting downward pressure on the won, the South Korean government decided to relax regulations to allow the introduction of leveraged products in the domestic market.

On April 28, South Korea amended the rules governing leveraged ETFs. Previously, South Korean ETFs were required to diversify investments across at least 10 stocks, with no single stock accounting for more than 30% of the portfolio. The new rules removed these obstacles, allowing the issuance of single-stock ETFs targeting blue-chip stocks. The maximum risk exposure was capped at 2x the underlying stock. Within a month, 16 two-times leveraged ETFs tied to Samsung Electronics or SK Hynix were listed on the domestic market.

Investors were required to have a minimum balance of 10 million won in their accounts and complete a two-hour intensive training course covering topics such as the risks of negative compounding, premiums and discounts, and leverage. However, this training program did little to dampen the fervor. The website of the Korea Financial Investment Association experienced a surge in traffic, causing temporary outages as 350,000 investors completed the training within just a few days. Within three days of the ETFs’ launch, the cumulative trading volume of the 16 funds reached 28 trillion won (approximately $28 billion), equivalent to 5.5 times their net asset value at the time. Three weeks later, the total size of bullish leveraged funds alone surpassed 14 trillion won.

According to Goldman Sachs, as of June 22, the total asset size of leveraged ETFs tracking Samsung Electronics and SK Hynix in domestic and international markets peaked at $53 billion. During a press conference on the same day, Lee Changjin, head of South Korea’s Financial Supervisory Service, admitted, “The hurried introduction of single-stock leveraged ETFs was intended to address the sharp rise in exchange rates and repatriate funds concentrated in Hong Kong-listed leveraged ETFs back to the domestic market. However, its effectiveness has been limited and has instead caused unintended side effects.”

The Self-Destruction Triggered by Leverage

Unwinding

The common premise of all leveraged markets is the illusion that one can keep dancing as long as the music plays. However, a crowded ballroom cannot withstand a chaotic exit. The first to leave were foreign investors.

As the AI memory market surged, the combined market capitalization of Samsung Electronics and SK Hynix accounted for more than half of the KOSPI index. Many foreign investors found their portfolio weights excessively concentrated in these two stocks, prompting sales not out of doubt about the future of the AI sector but out of simple rebalancing needs. In the first half of 2026, foreign investors recorded a net outflow of approximately $70.8 billion from the South Korean stock market, with $12.63 billion exiting in June alone. By mid-July, the cumulative outflow had approached $110 billion.

It is worth noting that this sell-off did not necessarily indicate a loss of confidence in the memory supercycle. In July, SK Hynix listed ADRs on the NASDAQ, raising $26.5 billion—setting a record for overseas companies in the U.S. market with a sevenfold oversubscription rate. Global capital remains willing to invest in the scarcity of high-bandwidth memory (HBM), but investors increasingly prefer to purchase shares of the same companies within the dollar-based system, during New York trading hours, and under greater liquidity conditions.

However, trading systems do not differentiate between motivations. Even if fund managers remain bullish on HBM in private, the orders reaching South Korea’s stock exchange boards are cold sell orders. The fear in the leverage unwinding market lies in its self-perpetuating nature: once the chain reaction begins, the market continues to fall without needing new negative catalysts. The cycle of foreign investors selling South Korean stocks → KOSPI declines → leveraged ETFs are forced to reduce exposure → margin calls are triggered → brokers execute forced liquidations → South Korean stocks fall further—formed a negative spiral.

After hitting an all-time high on June 19, the KOSPI entered a period of extreme volatility. Between June 19 and July 21, South Korea’s stock market experienced 13 trading halts and four circuit breakers within just 22 trading days. Following repeated rounds of forced liquidations and bargain hunting, the KOSPI fell 25% within a month, with volatility levels reaching rare heights not seen since the Asian financial crisis.

Goldman Sachs estimates that by July 13, over 1.2 million margin accounts held by individual investors in South Korea were subject to margin calls, with 320,000 to 360,000 accounts forcibly liquidated by brokers. While the fundamentals of the industry had not shifted, some investors exited the market within just two weeks, only to find their account balances reduced to zero upon their return.

A symbolic moment of this abnormal market occurred on July 7. Samsung Electronics announced its second-quarter performance forecast: revenue of approximately 171 trillion won (around $170 billion), operating profit of 89.4 trillion won (around $9 billion), reflecting a 129% year-on-year increase in revenue and a 19-fold increase in operating profit, surpassing market expectations. Yet, Samsung Electronics’ stock price fell 6.9% on the day of the announcement. Even strong earnings were powerless against the chain reaction of leverage unwinding.

Regulatory Retreat and Lessons Learned

On July 16, the same day the Bank of Korea raised its benchmark interest rate from 2.5% to 2.75% due to inflation concerns, regulators halted the issuance of new single-stock leveraged ETFs and raised the minimum investment requirement for individual investors from 10 million won to 30 million won. By this point, the asset size of leveraged ETFs had halved in less than a month, dropping to approximately $28 billion.

A term widely circulated in the South Korean market is “blue-sky poverty.” This refers to the phenomenon where individuals without assets realize overnight that the gap between themselves and asset holders has widened, even though their labor income remains unchanged, as stock or real estate prices soar. When Samsung Electronics and SK Hynix became the brightest stars in the eastern hemisphere’s night sky during the memory supercycle, this sentiment reemerged. Both companies presented almost unassailable industrial narratives. The problem wasn’t that people believed a false industry story but that a real wave convinced more and more people they “couldn’t afford to miss it.” For those who arrived after stock prices had already risen two to three times, their tardiness itself fueled the demand for leverage. The later they believed, the more they felt compelled to borrow money to make up for the missed gains—and the more they feared being left behind, the more they sought to compress wealth creation into a single sprint through leverage.

While South Korea’s regulators may be reluctant to directly quash speculative fervor, as Japan did in the 1990s, they bear the responsibility of deciding what kind of prosperity is worth sustaining. This incident vividly demonstrated how fragile a bubble can be when real economic drivers like AI memory demand intersect with the false mechanisms of financial leverage.

Editorial Opinion

In the short term, the collapse of leveraged ETFs has severely damaged the credibility of South Korea’s stock market, and inflows from individual investors are likely to stagnate for months. Although the fundamentals of Samsung Electronics and SK Hynix remain unchanged, the mass forced liquidations have disrupted the supply-demand balance, which will take time to normalize. Regulators’ delayed response means that clear policy messaging will be essential for restoring market trust.

In the long term, while AI memory demand itself is unlikely to decline, this event serves as a stark reminder to global investors that even industries with strong fundamental demand can see market collapses when financial leverage spirals out of control. Similar leverage bubbles may already be forming in other AI-related stocks, such as Nvidia. The crash in South Korea’s market could prompt a reassessment of risk across the entire AI sector. From an editorial perspective, the key question moving forward will be how to assess the disconnect between the real demand for AI-driven industries and price formation in financial markets. The fact that Samsung Electronics’ stock price fell despite strong earnings highlights how leverage trading can severely distort price discovery in markets.

References

• ” 最好的夏天爆仓了 ”, by 远川投资评论 — 虎嗅网, 2026-07-21T22:30:00.000Z (ARR)
• Source URL: https://www.huxiu.com/article/4877155.html?f=rss