Despite rescue efforts by Citadel founder Griffin, Wall Street is embroiled in intense debate: Is this an isolated event after all the bad news has been priced in, or a precursor to a repeat of the 2008 crisis?
After Citadel founder and billionaire Ken Griffin stepped in to rescue the hedge fund Situational Awareness, global AI-related stocks experienced a relief-driven rebound. Traders are now debating whether the worst of the market turmoil has passed or whether more funds will face liquidation.
After three consecutive days of selling pressure, South Korea’s KOSPI index surged a record 18%, and Japan’s Nikkei 225 rose 4%.
On Thursday, the Philadelphia Semiconductor Index, a key U.S. semiconductor industry indicator closely watched by markets, posted its largest single-day gain since April 2025. However, the index still recorded a monthly decline of over 20%, marking its worst performance since the global financial crisis.
Dragged down by SK Hynix and Samsung Electronics, South Korea’s Kospi index is also set to fall 22% this month. Earlier this year, these two stocks propelled the Kospi to become the world’s best-performing market.
Situational Awareness’s portfolio includes SK Hynix, whose American Depositary Receipts (ADR) once fell below the fund’s selling price. It has been reported that Griffin previously commented on the fund: “Your portfolio is highly concentrated with large positions, yet you cannot clearly articulate the competitive advantage behind holding these positions.”
Clearing amplifies market pressure
For some market participants, forced liquidations of AI investments due to situational awareness explain the selling pressure observed in the market in July.
At the time, a wave of selling triggered a chain reaction globally, further spiraling into another round of selling. Last month, margin loans in South Korea rose to a historic high before retail traders significantly reduced their borrowing.
The value of Situational Awareness's assets has plummeted from $45 billion in early July to approximately $10 billion, forcing the fund's manager, Leopold Aschenbrenner, to liquidate positions to meet margin calls. The fund had achieved an extraordinary return of 439% in the first half of the year.
Calvin Yeoh of Blue Edge Advisors, who assists in managing the Merlion Fund, said: "They're done, liquidated."
Yeoh also remarked about Ashenbrenner’s hedge fund: “Meanwhile, in South Korea, all retail investors have been liquidated, and there are no more sellers left.”
Funds flowing into leveraged exchange-traded funds (ETFs) have also shifted. According to Bloomberg Intelligence data, over the past two weeks, inflows into leveraged ETFs linked to Samsung Electronics and SK Hynix turned negative.
These funds have been blamed in South Korea for exacerbating market volatility. As of Thursday, their assets under management had fallen from over $11 billion on June 25 to $4.1 billion.
The market is concerned whether another fund collapse is on the horizon.
Yeoh is not the only market participant who believes the selling may be temporarily over. However, the earlier liquidations have led investors to wonder whether other funds are also facing similar difficulties.
Trading desk analysts are drawing parallels between the current situation and the 1998 collapse of Long-Term Capital Management (LTCM). At that time, the LTCM crisis prompted the Federal Reserve to organize a bailout to mitigate systemic risks in financial markets. Others are recalling the series of bank and fund acquisitions during the global financial crisis.
Cusson Leung, Chief Investment Officer at KGI International Wealth Management, said: “If there is one such situation awareness, how many other funds like this exist in the market? This morning, I was reminded of a very similar scenario—the exact moment JPMorgan Chase acquired Bear Stearns in 2008.”
Leung noted that similar feelings of relief had occurred in the market before the collapse of Lehman Brothers.
Ulrich Urbahn, Head of Multi-Asset Strategy and Research at Berenberg, is focused on whether there are still other highly concentrated leveraged exposures in the market.
“The more important question is whether this is the only over-leveraged exposure,” said Urbahn. “If there are other funds equally concentrated in AI, computing power, and semiconductors, then this single liquidation could be just the first domino to fall—not the last.”
Whether the rebound can continue remains to be seen.
Joshua Crabb, Head of Equities for Asia Pacific at Robeco, believes that the unwinding of large-scale leveraged trades may be nearing its end.
“We’ve seen the unwinding of large leveraged positions nearing its end, and the rescue of Situational Awareness is the final piece of the puzzle in the short term,” Crabb said.
He believes that Asian markets have benefited as a result, since valuations in Asia were already low, and certain AI stocks in South Korea have become very inexpensive.
Currently, this rally is being driven by lighter positions, lower valuations, and improved sentiment.
Asymmetric Advisors' Japan equity strategist Amir Anvarzadeh said: “This is a reminder of the same old lesson from the LTCM episode.” He quoted Keynes:
Markets can remain irrational longer than you can remain liquid.