Overview
South Korean retail investors executed a record volume of sales in Kospi-listed shares on Friday after July's sharp market reversal dented confidence and prompted criticism of President Lee Jae Myung's government. Although the Kospi rallied 18% on Friday, the index still closed July down 22% for the month - its steepest monthly drop since the global financial crisis.
Market mechanics and volatility
Trading in constituents of the Kospi was suspended four times during July, a record number of circuit-breaker halts that highlighted the depth of the market swings. Retail participation surged earlier in the summer; investors had ploughed roughly 78 trillion won into Kospi shares during May and June. That influx was driven in part by the government's market-reform campaign and the debut of single-stock leveraged exchange-traded funds, which amplified exposure to individual companies.
Those leveraged products have been criticised for exacerbating market moves as participants using margin and leverage rushed to unwind concentrated positions. In response to the turbulence, South Korean authorities temporarily blocked new listings of single-stock leveraged ETFs in mid-July and have since pledged additional measures aimed at stabilising markets and restricting retail access to high-risk instruments.
Concentration in AI and semiconductor names
The sell-off was focused on the country's largest AI-linked companies. Samsung Electronics (005930) fell 21% in July, while SK Hynix (000660) tumbled 35% over the same period. Together, those two memory-chip manufacturers represent more than half of the Kospi, leaving the broader index highly sensitive to shifts in sentiment around artificial intelligence and semiconductor spending.
Despite the recent pullback, longer-term returns for the majors remain strong: Samsung shares have climbed more than fourfold since the start of 2025, and SK Hynix's shares are up nearly tenfold. The Kospi also continues to rank among the world's strongest-performing major indexes so far in 2026.
Analyst views and near-term outlook
Analysts attribute July's decline to a mix of crowded AI trades, margin financing and leveraged instruments, rather than to a fundamental collapse in the investment case for artificial intelligence. Further volatility in technology and semiconductor stocks is considered possible as investors pare leveraged positions. Rebuilding retail confidence could be protracted, particularly for traders who entered the market near its highs or who invested with borrowed funds.
Key data points
- Kospi July monthly loss: 22%
- Kospi rebound on Friday: 18%
- Retail inflows in May-June: ~78 trillion won
- Trading halts for index constituents in July: 4 (record)
- Samsung Electronics (005930) July decline: 21%
- SK Hynix (000660) July decline: 35%