South Korean markets tumble as AI-fueled speculative bubble bursts

South Korean equities fell sharply again on Wednesday, extending a two-day selloff that has wiped out about $2.18 trillion in market value, according to figures cited in the source material. The drop was led by a reversal in sentiment toward artificial intelligence-linked chipmakers, which had been key beneficiaries of an AI-driven investment surge.

The benchmark KOSPI closed down 6% on the day after an 11% plunge on Tuesday. The move left the market heading toward what the source described as its steepest monthly decline on record, as volatility accelerated across technology-heavy assets.

Leveraged positions and new products in focus

Officials linked the speed of the downturn to Officials linked the speed of the downturn to a fast unwinding of leveraged trades built around the technology rally. The source said the decline was triggered by a rapid exit from leveraged positions in assets that had previously gained during the AI-led boom. Finance Minister Koo Yun-cheol said the launch of single-stock leveraged exchange-traded funds (ETFs) had contributed to instability, acknowledging that the introduction of these products intensified market stress during the selloff. Authorities prepare stabilization measures In response, the Ministry of Finance and the Bank of Korea held an emergency meeting to finalize steps aimed at stabilizing markets. Authorities announced plans for tighter constraints on leveraged products, targeting both participation and trading behavior.

South Korean

The measures outlined include individual investment caps of 20% and higher trading costs designed to reduce speculative activity. Officials said the is to limit the build-up of risk in products that amplify gains and losses, particularly when market momentum reverses quickly.

Scale of the decline and what remains unclear

From its peak a little over a month ago, the KOSPI has fallen by nearly 40% , according to the source material. The magnitude and speed of the reversal underscore how quickly positioning can change when leveraged exposure is concentrated in popular themes such as AI-related semiconductors.

Despite the current slump, the index is still up 41.5% in U.S. dollar terms year-to-date, keeping it among the best-performing major markets so far this year. How quickly the new restrictions are implemented, and whether they calm volatility in the near term, were not specified in the source.