South Korea’s tech-heavy Kospi stock index, long known as the world’s most volatile major benchmark, is reeling from one of the sharpest downward corrections in its history, triggered by a sudden pullback in AI-fueled tech stock gains that has left millions of retail investors facing devastating losses on life-changing savings. The rout, which unfolded between June and August, has drawn comparisons to the catastrophic market drops seen during the 1997 Asian financial crisis and the 2020 Covid-19 pandemic, shining a bright spotlight on the risks of overconcentrated bets on high-growth artificial intelligence assets among amateur traders.
The scale of the swing has been staggering: after more than doubling in value in the first half of the year to push past the 9,000-point threshold in mid-June, the index plummeted to 5,500 points in just a matter of weeks. It has since clawed back some losses to stabilize around 6,800 points, but the damage to individual investors’ portfolios has already been done. The root cause of the sell-off, according to Wee Khoon Chong, a strategist at global financial services firm BNY, is growing investor anxiety over the massive amounts of capital being poured into AI development, with many market participants questioning whether the current valuations of leading chipmakers and AI firms are sustainable.
For many ordinary South Korean savers, the downturn has turned anticipated life milestones into financial uncertainty. Take Yongjoon Kim, a bank worker who had earmarked his investment gains for a down payment on a new home ahead of his wedding later this year. Kim lost roughly 20 million Korean won (equivalent to $14,000 USD) after his concentrated tech portfolio dropped by 25% in July alone. “This loss is going to hurt, and I’ll have to put in extra work for years to make up the gap,” Kim said in an interview. “But I’m luckier than many of my friends who went all in with their entire life savings – they’re in desperate situations right now.”
Kim’s experience is far from unique. Woongsa Kim, another retail investor, bought shares of leading memory chipmaker SK Hynix at the start of the year using half of his annual work bonus. The stock surged to four times its original value at the index’s peak, only to wipe out almost all those gains in the subsequent correction, cutting the investment’s value to half its peak high. “Just thinking about what I lost brings me to tears,” he told the BBC.
The crisis has been amplified by the explosive growth of leveraged trading among South Korea’s retail investors, a trend that has also picked up steam in markets including Taiwan and the United States, according to Frank Benzimra, head of Asia equity strategy at Societe Generale. Leverage allows investors to borrow money to control a larger block of shares than their own capital can afford, magnifying gains when prices rise but triggering forced liquidations – called margin calls – when prices fall below a pre-agreed threshold. By the end of July, an estimated 1.2 million South Korean retail investor accounts had received margin calls, a figure equal to roughly one out of every 30 working-age adults in the country.
Many of the traders caught up in the rout were first-time investors lured into the market by the global AI boom and widespread fear of missing out on fast gains. Marketing professional Chanyong Park saw his holdings in US-based AI chip giant Nvidia surge by more than 1,000%, then reinvested almost all of those profits into SK Hynix – only to see the bet go sour, erasing roughly $10,000 in value. The losses have thrown his plans to quit his job in October and launch his own business into doubt. “I’m now seriously questioning whether I’ll have enough capital to move forward with that plan,” Park said. Like many other affected investors, he is holding onto his shares in hopes of a rebound, but recent wild swings have made him hesitant to add more capital to his position. “It often doesn’t feel like price movements are driven by rational fundamentals – it feels a lot like gambling,” he added.
Another investor, Youngji Park, went all in on Samsung shares, which peaked at a total value of 45 million Korean won before suffering what he describes as a gut-wrenching downturn. “I feel like a fool for trusting the Korean market,” he said, adding that he has no choice but to hold his position and wait for a recovery over the long term. Even college students have been caught up in the damage: Soomin Yi pooled her money with a friend to buy SK Hynix shares after feeling FOMO (fear of missing out) on the AI boom, but neither had any formal investing experience or access to experienced guidance. They held onto their shares even after they peaked in June, clinging to speculation that prices would rise even higher to five million won per position, and are now sitting on heavy losses.
The extreme volatility of the Kospi has raised ripple effect concerns for other global markets, with Benzimra noting that other tech-heavy benchmarks like Japan’s Nikkei 225 have moved in lockstep with South Korea’s wild swings. However, he added that most large, diversified global markets are unlikely to see the same level of extreme volatility, as their indexes include a far broader mix of sectors that can cushion against sector-specific sell-offs. “You won’t see this kind of extreme movement in large diversified markets like the Tokyo Stock Price Index or US equity markets,” he explained.
Investors who followed traditional diversification advice have fared far better in the downturn, with diversified portfolios softening the blow of the tech rout. Yongjoon Kim, who also holds positions in overseas markets, says the entire episode is a critical warning for young and new investors, especially in South Korea. “This is a wake-up call not to put all your eggs in one basket and hope for the best,” he said, adding that he regrets not taking a more cautious approach to his tech stock bets. His fiancée, Gaeon Lee, remains optimistic that the market will eventually recover, but she says the constant stress of monitoring plummeting investments has taken a clear toll on her partner. “Seeing our home savings take a hit was definitely a wake-up call for all of us,” she said.