The Kobeissi Letter@KobeissiLetter · Jul 29, 2026

Absolutely incredible. In an unprecedented move, South Korea's stock market just collapsed -44% in 40 days, erasing…

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Summary

South Korea's stock market crashed 44% in 40 days, losing $2 trillion in value after a 135% surge driven by AI-related gains in Samsung and SK Hynix. The collapse was triggered by extreme market concentration (50% in two stocks), record leverage through ETFs, and unprecedented retail trading, prompting government intervention with trading restrictions.

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#1
Absolutely incredible. In an unprecedented move, South Korea's stock market just collapsed -44% in 40 days, erasing -$2 trillion in market cap. Now, South Korea's finance ministry has announced plans to "stabilize" the market. What is happening? Let us explain. (a thread)
#2
First, some background. Between December 2025 and June 2026, South Korea's stock market surged +135%. This propelled the country's stock market to the 6th largest in the world, even larger than India. Just years ago, it wasn't even in the top 20. AI changed everything.
#3
What happened? Chipmakers SK Hynix and Samsung saw historic gains, rising +1,900% and +600% in one year, respectively. These two stocks accounted for as much as 50% of South Korea's stock market last month. Never in history has growth at this scale happened so quickly.
#4
On top of this, record levels of leverage are being utilized in Korea's market. Leveraged and inverse ETFs tracking SK Hynix held ~$19 billion in total assets, 4X the stock's average daily trading volume of ~$4.5 billion. Samsung had~$12.4 billion in leveraged ETF assets.
#5
In late-June, cracks in the market began to emerge. Stock trade defaults reported by firms in Taiwan rose to ~$70 million in June. This is the highest monthly total since data began in 2019. Trade defaults soared +300% in 2 months and exceeded the 2021 record by ~20%.
#6
Options were even further out of control. Call option notional open interest on the South Korea ETF, $EWY, surged to a record $5.5 billion in May. To put this into perspective, weekly call open interest did not exceed $700 million before 2025. Another unprecedented move.
#7
Sum this all up and the market was ripe for a crash. The combination of record retail trading, market concentration, and unprecedented leverage was lethal. We saw a domino-effect-style decline, with SK Hynix falling -60% since June 25th. The government is trying to intervene.
#8
Today, Korea's government announced an "emergency market meeting." The country's finance ministry announced a "24-hour market monitoring system." This includes restrictions on levered ETF trading and caps in retail exposure to these products. Stocks have bounced on the news.
#9
The question becomes, what does this mean for the rest of the world? US memory stocks have followed a similar trajectory. SanDisk and Micron are down nearly-50% from their recent highs. We believe this correction was necessary and will lead to a rotation back into big tech.
#10
While memory stocks and South Korea's market rallied, big tech saw its biggest correction in years. However, earnings growth in these names has remained robust. We believe large cap tech is poised to regain market leadership in the coming weeks as memory stocks fade.
#11
Unusual times lead to unusual swings in the market, and the S&P 500 is swinging trillions in market cap. Our subscribers are capitalizing on it. Want to access our premium research? Subscribe at the link below to access our latest analysis and alerts: thekobeissiletter.com/subscribe
#12
The last 30 days have reminded many of a key lesson when investing. Fear and greed are the two most powerful drivers of price action. This an entirely mechanical move driven by excessive green in the market. Follow us @KobeissiLetter for real time analysis as this develops.