Foreign Investor Exodus, Retail Leverage, and Profit-Taking Trigger South Korea's 'Black Monday'

Huo Xing Finance reports: On June 8, South Korea’s stock market continued its downward trend from Friday, plunging more than 8% shortly after opening and triggering a trading halt due to a circuit breaker. Reports indicate that the Korea Exchange held an emergency meeting on Monday to assess the intensifying market volatility and discuss measures to ensure stable market operations. Data shows that as the KOSPI index reached a record high last week, foreign investors have been withdrawing, net selling over $10 billion in KOSPI stocks in just the past week. This selling pressure has also weighed on the Korean won, pushing its exchange rate against the U.S. dollar to its lowest level since March 2009. Additionally, Korea Exchange data reveals that Samsung Electronics and SK Hynix, benefiting from AI-driven chip demand, together account for 54% of the weight in the KOSPI index, with their average daily trading volume representing nearly half of the index in May. Together, these two companies contributed nearly three-quarters of the KOSPI’s gains this year. On Tuesday last week, when the benchmark index hit its record high, only 2.6% of stocks reached their 52-week highs, while 31% hit their 52-week lows. The remarkable rally has fueled a sustained rise in retail investor leverage. Kenny Kim, CEO of Meridian One Asset Management, stated: “The current market structure is vulnerable to an economic recession, as it is dominated primarily by short gamma in leveraged ETFs.” However, retail investors—who were once the main market drivers—are now showing reduced willingness to inject new capital. According to data from the Korea Financial Investment Association, broker deposits fell from 137 trillion KRW on May 12 to 121 trillion KRW (approximately $79 billion) by May 22. Meanwhile, data from the Korea Financial Intelligence Agency (KFIA) shows that margin balances reached a record 38 trillion KRW as of May 29, up from 27.3 trillion KRW at the end of 2025. The signal is clear: cash buffers are shrinking while active leverage remains stubbornly high. Kim Doo-woon, an analyst at Hana Securities, warned that South Korea’s market faces the risk of a “Black Monday” event, as “currency instability, interest rate repricing, and profit-taking in the semiconductor sector are occurring simultaneously.”