The Kospi Index has fallen into bear market territory, sliding 27% from its record high as a retreat in leveraged bets on heavyweight stocks Samsung Electronics and SK Hynix accelerates. The index closed at 6,788 on Friday, down sharply from its peak earlier this year.
Retail leverage unwinds
South Korean retail investors, who had piled into leveraged products during the AI-driven rally, are now pulling back. According to Bloomberg, trading volume in leveraged Samsung and SK Hynix products has collapsed to just 4% of June's peak. These products are also on track for their first monthly outflows since their approval, as regulatory tightening and steep losses take their toll.
The initial surge was fueled by optimism around the AI boom and government pledges to push the index to 5,000. Samsung and SK Hynix, key memory chip suppliers, posted strong earnings and announced massive buyback programs—Samsung committing $80 billion and SK Hynix nearly $30 billion. Yet both stocks have tumbled 32% and 44% respectively from their highs, eroding confidence in the rally.
Macro headwinds
The Bank of Korea's decision to hike interest rates for a second consecutive meeting, citing elevated inflation from the US-Iran conflict and rising wages, has added pressure. Investors are now eyeing upcoming data: retail sales and industrial production for July, due Monday, and August trade figures expected to show exports up 62.6% and imports up 24.7%, resulting in a surplus of over $30.7 billion. Wednesday's consumer inflation report will be crucial for rate expectations.
Technical outlook
Chart patterns suggest the Kospi may be forming a bearish flag or rising wedge, with the index trading below its 50-day exponential moving average. A break below current support could open the door to a test of the 6,000 level. The unwinding of leverage, combined with macro uncertainty, points to continued volatility. As analysts debate whether this is a buying opportunity, the near-term bias remains cautious. The recent slide in memory chip stocks, including SK Hynix's 20% drop on Apple-CXMT talks, underscores the sector's fragility. Meanwhile, Samsung's record payout has failed to reassure investors, and the broader market remains vulnerable to further downside.
This article is for informational purposes only and does not constitute financial advice.
