South Korean market volatility wipes out investors, sparks hedge fund profit‑taking

South Korean equities plunged after a record rally, with the Kospi Index falling as much as 5.5% in early trading. Heavyweights Samsung Electronics and SK Hynix each dropped around 9% after having surged 27% and 30% the previous week. The sharp retreat was driven by profit‑taking and deleveraging among hedge funds and other leveraged investors following extreme AI‑related market swings.

Foreign investors sold more than KRW 1 trillion (about US$700 million) of Korean stocks, while leveraged exchange‑traded funds and margin accounts left over 700,000 retail investors with wiped‑out positions. Hedge funds locked in gains as they reduced exposure, and Morgan Stanley upgraded South Korean equities to an overweight stance, citing reduced leverage and a more attractive entry point for the AI investment cycle.

The episode highlights the risks of high‑leverage financial instruments, which amplified gains during the rally but caused severe losses when sentiment reversed, echoing similar concerns for investors in other markets.