South Korean investors have been pulling back from margin loans in a big way.
Margin loans peaked at 38.6 trillion won in late June. The July figure is 13% lower than that high.
Investor deposits tell a similar story. Brokerage account cash balances totaled 108.1 trillion won on July 16, compared to a record 139.7 trillion won seen on June 4.
The selloff in Korean tech stocks has been particularly severe, as the sector had been the main driver of the Kospi's rally. With AI-related optimism fading, foreign investors have been net sellers, exacerbating the downward pressure. The combination of forced foreign selling and margin calls has created a vicious cycle, according to analysts. The Kospi's drop has erased all gains made since early May.
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The recent drop in margin debt follows a period of heavy borrowing during the AI-fueled rally that pushed the Kospi to a peak in June. Retail investors had aggressively used leverage to bet on semiconductor stocks, but the sharp reversal has forced many to unwind positions. The decline in brokerage cash balances also indicates that investors are moving to the sidelines, waiting for clearer signs of a market bottom.
The trigger was memory-chip stocks.
The broader market took the hit hard. This month, Samsung Electronics Co.'s market capitalization has dropped by approximately 25%, while SK Hynix Inc. has seen its value fall by about one third.
In a note, JPMorgan Chase strategists led by Mixo Das stated, "an intense period of de-leveraging has driven equity prices lower." They further noted that because of the swift increases over the last year, "some of the side effects of this growth have been the elevated volatility and forced foreign selling - producing a self-correcting mechanism."
This self-correcting mechanism, as described by JPMorgan, occurs when rapid gains lead to excessive leverage, which then unwinds during a selloff, amplifying losses and forcing further selling. The process often overshoots to the downside, creating potential buying opportunities for long-term investors. Investors are watching for stabilization in chip stocks as a potential turning point.
Beyond the immediate technicals, the pullback underscores how quickly speculative fervor can reverse when AI-fueled expectations meet reality. The rally had drawn in a wave of retail participants using borrowed money, and their rapid exit now amplifies the market's downward momentum. Many analysts believe the bottom will only become clear once forced selling subsides and foreign capital returns to the semiconductor sector.
This deleveraging mirrors a wider regional trend. In China, traders reduced margin debt on Friday at a rate not seen since the 2015-2016 market crash, while retail investors in Taiwan cut their leveraged positions at the fastest clip in over a year. The simultaneous unwinding across Asia underscores how interconnected these markets have become.
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