Korean AI Stock Bubble Bursts: From $200K Profit to Ruin – The Untold Story of Seoul's Devastated Investors

Seoul is reeling. What began as a glittering opportunity in the AI stock boom has shattered for millions of everyday Korean investors, transforming buoyant profits into devastating losses. At the heart of this financial maelstrom is Song Mi-kyung, a 60-year-old Seoul resident who, earlier this year, was celebrating a profit of Won300mn – a staggering $200,000.

Now, her portfolio reflects a stark reversal: a paper loss exceeding 60%. The Kospi, Korea’s benchmark index, is bracing for a record monthly decline, plummeting nearly 40% from its June peak. “The losses are ballooning day by day. I am really stressed out. I don’t know what to do about it,” she says, her voice thick with worry. “I’ve never seen such rapid falls, not even during the Asian financial crisis. I’m about to give back all the gains I’ve made this year.”

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Song is far from alone. Tens of millions of South Korean retail investors, eager to capitalize on the surging global demand for memory chips, poured into one of the world’s best-performing stock markets. Many had missed out on the previous year's 75% rally, and with President Lee Jae Myung encouraging a shift of household wealth from the overheated property market into equities, the allure was irresistible.

The market’s titans, Samsung Electronics and SK Hynix, which together comprise nearly half the Kospi, led a blistering rally. However, the tide turned with brutal speed. The Kospi shed approximately 16% in just two days, hitting its lowest point since early April following a savage sell-off in both companies.

Brokerage houses are now painting a grim picture. Korea Investment & Securities reports that nearly half of its 880,000 clients who bought Samsung shares are now in the red. For SK Hynix investors, the situation is even grimmer, with almost 70% of 408,000 clients facing losses.

This widespread pain is amplified by the sheer volume of participation. The number of active individual stock trading accounts in Korea has neared 110 million – a staggering equivalent of about two for every citizen. Many of these investors used margin loans and leveraged exchange-traded funds (ETFs) to magnify their exposure to technology shares, a decision that has proven disastrous.

Namuh Rhee, chair of the Korean Corporate Governance Forum, notes that the unwinding of leveraged ETFs tracking the volatile semiconductor sector is sending shockwaves, with many retail investors seeing their principal nearly wiped out. “The market seems to be nearing a selling climax,” Rhee states, “with retail deleveraging almost complete and widespread forced liquidation of stock holdings.”

Adding to the turmoil, regulators in late May had approved 16 single-stock leveraged ETFs tracking Samsung and SK Hynix. These products, designed to amplify returns, are now being blamed for amplifying market volatility; most have fallen over 60% since their debut. “The leveraged funds became a trigger when the market was already due for profit-taking,” observes Jongmin Shim, an equity analyst at CLSA.

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In response to the crisis, Korea’s finance ministry, central bank, and financial regulators held an emergency meeting, announcing plans to limit access to leveraged ETFs, acknowledging their role in “amplifying market volatility.” Meanwhile, the Bank of Korea has issued warnings about rising household debt, and a lawmaker has even proposed a bill to exempt loss-making retail investors from stock transaction taxes.

Brokerage chat rooms have become virtual forums for despair. Investors lament losses ranging from 70 to 80 percent from their ETF holdings. “When can I get out of this hell?” one investor asked after their Tiger SK Hynix Leverage ETF sank by 65 percent. Another chillingly wrote, “My life’s screwed. I don’t think there’s any way out.”

Young Koreans, many of whom embraced these high-risk products as a quick path to wealth amid an unaffordable housing market, have been particularly hard hit. Ha Seok-keun, chief investment officer at Eugene Asset Management, explains that the influx of amateur investors this year, combined with their late entry, has magnified the damage. Shim echoes this, describing the losses as “unprecedented” for those who entered after stocks had already soared.

As the market grapples with a "worst phase where fundamentals no longer matter," analysts predict a slow recovery. Extreme volatility is deterring institutional investors, while retail investors are left traumatized. “In just over a month, their fortunes have reversed rapidly. Many are fleeing the market, frightened by huge losses and exhausted by volatility,” says Ha. “The rapid and deep correction is damaging their mental health as well as their stock accounts.”

While a modest recovery on Thursday offered a glimmer of hope, it is unlikely to assuage the deep-seated fears of troubled investors. This dramatic story of hope, greed, and devastating loss is exactly what our hosts will dig into on the Margin Call podcast.