South Korea's novice investors face losses as AI chip boom turns to bust

When the South Korean stock market began its explosive climb early in 2026, fueled by global hunger for the memory chips that power artificial intelligence systems, millions of ordinary people decided it was finally their moment. Eun-bi, a civil servant in her thirties, was among them. She withdrew most of her savings and bought shares in SK Hynix, one of the world's largest chipmakers, along with a U.S.-listed fund tracking the semiconductor industry. She had a specific goal in mind: raise enough money for her wedding planned for April of the following year.

The timing seemed perfect. The KOSPI, South Korea's benchmark index, had doubled in just six months. It cleared 5,000 points in January, then 8,000 in May. On June 19, it hit an intraday peak of 9,385.59. The surge was driven almost entirely by two companies—Samsung Electronics and SK Hynix—which together made up more than half the index. For investors betting on semiconductors, the gains felt inevitable, almost effortless. But the market's concentration in a single sector, and in just two stocks, meant that when sentiment shifted, there would be nowhere to hide.

By late July, the reversal was complete. The KOSPI had plunged nearly 40 percent from its June peak, erasing most of the year's gains and leaving it below 5,595 points. Eun-bi's portfolio lost tens of thousands of dollars. The wedding she had been planning was now in jeopardy. "Now I'm wondering if I should scale down the ceremony or skip the honeymoon," she said. She was far from alone. Millions of South Koreans who had invested enthusiastically during what was being called the country's biggest stock market rally in history now watched their savings evaporate almost as quickly as they had accumulated.

What made the losses so severe was not just the market's volatility, but the leverage embedded in how many people had invested. Margin loans—borrowed money used to buy stocks—had peaked at 38.6 trillion won, roughly $27.6 billion, in June. By the end of July, as brokerages forcibly liquidated the holdings of investors who could not cover their losses, that figure had fallen to 28.9 trillion won. Many first-time investors had been encouraged to take on this debt by President Lee Jae Myung, who had campaigned on a promise to make South Korea's long-lagging stock market work for ordinary citizens. The government had even approved the sale of leveraged exchange-traded funds—financial products that magnify daily price movements—specifically tracking Samsung and SK Hynix. Eighteen of these funds launched on May 27, just three weeks before the market turned.

The political consequences have been swift. Lee's approval rating has fallen for five consecutive weeks, reaching 43 percent in mid-August—the lowest point of his presidency. His rivals have seized on the market collapse as evidence of policy failure. Cho Kuk, a former justice minister who left Lee's party to found a smaller opposition group, wrote on social media that young people who invested on the government's encouragement had been "caught in a leverage trap the government itself laid, and are left with debt and trauma they may never shake off." The stock market, he added, "must not become a casino."

Analysts offer competing explanations for what went wrong. Some point to the rush of inexperienced retail investors making leveraged bets on a handful of stocks. Others note that Korean investors in their thirties and fifties had long been concentrated in U.S. tech stocks and were already familiar with leverage—but the launch of leveraged ETFs tracking Samsung and SK Hynix, stocks that sat in nearly every Korean portfolio, created a false sense of safety that clouded judgment about risk. Benjamin Engel, an expert in Korean politics at Dankook University, observed that people had over-leveraged themselves by taking loans to invest, and that "the inevitable decline in the market happened." Now, he said, the stock market will likely become a permanent factor in Korean politics.

Eun-bi herself did not buy any of the domestic leveraged products, partly because she had run out of money to do so. And despite her losses, she does not blame the government. "There are plenty of leveraged products overseas too," she said, suggesting that once the short-term overheating passes, the domestic market will probably function normally again. Still, her experience has changed how she thinks about investing. She now plans to diversify across sectors and convert everything back to cash before her wedding. The market, meanwhile, remains volatile. On a single Wednesday in mid-August, the KOSPI dived nearly 6 percent, following a 1.55 percent drop the day before. The index is up about 50 percent since the start of the year, but it remains 30 percent below its all-time high, and the question of whether it will ever return to those peaks—or whether the damage to retail investors' confidence will prove lasting—remains unanswered.