Retail
South Korea's AI-chip leverage unwind: 1.2 million margin calls, 360,000 forced liquidations, and a rate hike that made it worse
The Korea Exchange has triggered 36 trading halts and seven market-wide circuit breakers in 2026 alone, more than half the total since the mechanism began in 1995, after retail investors ran roughly 3x leverage into Samsung Electronics and SK Hynix on the AI chip trade.
The circuit-breaker count on its own tells you how unusual this year has been for South Korean markets. Thirty-six temporary trading halts and seven market-wide circuit breakers have fired in 2026, more than half of every such event recorded since the Korea Exchange introduced the mechanism in 1995. That is not a market having a bad quarter, it is a market repeatedly hitting the emergency brake most of its history never required.
Behind the halts is a retail leverage bet concentrated almost entirely in two stocks. Goldman Sachs data cited in the reporting put combined margin balances in Samsung Electronics and SK Hynix at 9.1 trillion won, over a third of total KOSPI margin debt, with retail traders running average leverage of roughly 3x and total margin loan balances peaking at 60 trillion won in May 2026. As of 13 July, more than 1.2 million retail accounts faced margin calls and between 320,000 and 360,000 had already been forcibly liquidated by brokers, a scale the reporting frames as roughly one in every 30 working-age South Korean adults. Investors aged 20 to 30 accounted for 62% of the losses, and the forced-liquidation rate on short-term loan positions surged above 10% in the week of 10 July against a six-month average of 2.1%.
The trade itself followed a familiar feedback-loop shape: AI chip stocks rise, the index hits new highs, fear of missing out pulls in more leveraged retail money, and the buying pressure pushes chip stocks higher still, right up until the direction reverses and the same leverage that amplified the gains amplifies the losses on the way down. What makes this instance sharper than the standard version of that story is the response that followed it. On 16 July the Financial Services Commission suspended new leveraged ETF listings and tripled the minimum cash margin requirement for new investors from 10 million to 30 million won, while the Bank of Korea raised rates 25 basis points to 2.75%, its first hike in three years.
That rate hike is worth flagging on its own terms rather than folding into the regulatory-response paragraph, because it plausibly cuts against the stated goal. Higher rates compress valuations and raise the cost of carrying margin debt, which is exactly the mechanism that accelerates a forced-liquidation cascade already in progress rather than calming it. Whether the FSC's leverage restrictions and the BOK's rate move were coordinated or arrived at independently is not addressed in the reporting, but a market already working through 1.2 million margin calls getting a simultaneous rate hike is the kind of policy overlap that deserves scrutiny rather than being read as a clean, two-pronged fix.
Read the original: BigGo Finance - South Korea's AI-chip leverage unwind: 1.2 million margin calls, 360,000 forced liquidations, and a rate hike that made it worse. Commentary is the independent editorial view of Share Trading; the original article is credited to its publisher.