Samsung, SK Hynix, and Leveraged ETFs Dominate 70% of Trading as Korean Stocks Fall from Global Leader to Bear Market

Once among the world's strongest-performing capital markets, South Korea's stock market is now facing a structural crisis. Samsung Electronics, SK Hynix, and recently listed leveraged tracking ETFs together account for over 70% of total market trading volume. This extreme concentration has sharply increased volatility risks and heightened investor concerns about market stability and liquidity.

According to the latest market data, the Korea Composite Stock Price Index (KOSPI) has officially entered a technical bear market, falling more than 20% from its historical peak in June.

Market fragility has been clearly exposed through trading mechanisms. So far this year, South Korea has triggered its nationwide trading halt mechanism (circuit breaker) six times—a number that accounts for half of all such incidents since 2000.

The origin of this turmoil traces back to the late May launch of several single-stock leveraged ETFs.

Before these products were introduced, Samsung and SK Hynix already accounted for 30% of total market volume. With the addition of leveraged ETF trading, concentration rapidly worsened, peaking at 84% in late June. Although it has slightly declined recently, the figure remains abnormally high, consistently above 73%.

South Korea's financial regulators have publicly expressed regret, acknowledging that these products have caused significant negative side effects. Political calls for the forced delisting of these ETFs are also growing.

The Vicious Cycle of Leverage-Driven Volatility

This retail-investor-led leveraged bet initially aimed to ride the historic rally in chip stocks. Early in the year, Samsung and SK Hynix shares surged more than 200% from their starting levels, drawing massive retail participation.

However, as global markets began questioning the sustainability of heavy capital investment in artificial intelligence (AI), even minor supply chain movements started heavily influencing stock prices.

The mechanics of leveraged ETFs have ironically become catalysts for amplifying panic. Ian Samson, Portfolio Manager at Fidelity International, points out that to maintain a constant leverage ratio, fund managers must buy when prices rise and sell when they fall. This mandatory daily rebalancing directly reinforces market volatility.

This mechanical feedback loop further magnifies the underlying uncertainty in the semiconductor industry, making abnormal single-day swings exceeding 5% increasingly common.

Regulatory Dilemma and Suppressed Market Breadth

Analysis from CLSA Korea highlights that extreme capital concentration is severely suppressing broader market breadth and investor sentiment.

While some analysts view the current pullback as a correction within a bull market rather than the start of a systemic collapse, the reality is that Korea's stock market has become extremely dependent on these two chip giants—Samsung and SK Hynix together account for 54% of the KOSPI benchmark index.

Regulators initially approved these leveraged products to channel retail capital back into the domestic market and boost liquidity to support the weakening won.

Yet, the policy has backfired. These tools have instead become core sources of market instability.

South Korea's financial regulators now face a dilemma: forced intervention or delisting could trigger even greater panic selling, while inaction means the threat of the next circuit breaker looms constantly over investors.

With the AI-driven premium fading and fundamental uncertainty in the semiconductor sector persisting, it remains to be seen whether South Korea's stock market can rebuild investor confidence.

Market participants are closely watching regulatory next steps and how this leverage-fueled boom will navigate the painful deleveraging adjustment ahead.