South Korean stock market plunge hits retail investors hard, KOSPI falls nearly 40%

Huo Xing Finance reports that on July 30, according to the Financial Times, South Korea’s stock market surged sharply amid AI-driven trading, then quickly reversed, causing severe losses for tens of millions of retail investors. The KOSPI index has fallen nearly 40% from its June high and may record its largest monthly decline in history; after heavy selling pressure hit Samsung Electronics and SK Hynix, the index dropped approximately 16% over just two trading days, reaching its lowest level since early April. Nevertheless, Samsung Electronics and SK Hynix have still risen about 70% and 112% respectively year-to-date. After missing 75% of the market rally in 2025, retail investors became the largest buyers in the Korean stock market this year, with many increasing their exposure to tech stocks through margin loans and single-stock leveraged ETFs. Data from Korea Investment & Securities shows that nearly half of the 880,000 clients who bought Samsung Electronics are now in loss; among the 408,000 investors who purchased SK Hynix, nearly 70% are underwater. Active individual stock trading accounts in South Korea have approached 110 million, equivalent to roughly two accounts per resident on average. Recent deleveraging has further amplified market volatility. Available cash for investment in Korean brokerage accounts has dropped from a June peak of 139.7 trillion KRW to 107 trillion KRW; margin balances have fallen from a record-high of 38.6 trillion KRW last month to 33.2 trillion KRW, triggering widespread forced liquidations. In late May, South Korean regulators approved 16 single-stock leveraged ETFs tracking Samsung Electronics and SK Hynix; most of these products have since declined more than 60% since listing. Analysts say these ETFs acted as catalysts for further declines at a time when the market was already due for profit-taking, wiping out nearly all of some retail investors’ principal. CLSA analyst Jongmin Shim stated that retail investors are suffering “unprecedented” losses, as many entered the market only after prices had already surged dramatically. Following an emergency meeting, South Korea’s Ministry of Finance announced plans to restrict retail participation in leveraged ETFs, acknowledging that these products are exacerbating market volatility. Analysts believe retail deleveraging is nearing its end, but extreme fluctuations may continue deterring institutional investors from large-scale investments, while distressed retail investors flee the market in panic—suggesting a slow recovery for Korean equities. The KOSPI index rebounded by about 3% on Thursday, but this remains insufficient to offset the losses suffered by retail investors during the recent plunge.