KOSPI plunged 33% then jumped 18%; retail traders broke

South Korea’s benchmark KOSPI fell roughly 33% over July and then rebounded 17.91% on July 31, marking the index’s largest single‑month decline and largest one‑day rise on record. Many retail investors who used margin in Korean equities report they lack capital to re-enter cryptocurrency markets.

The sell‑off accelerated in late July after reports that China began mass production of domestic chipmaking equipment. On July 28 the KOSPI dropped 10.8% in one session, triggering multiple trading halts. Semiconductor leaders Samsung Electronics and SK Hynix led losses. SK Hynix reported record quarterly revenue but missed analyst estimates the following day, deepening the drop and producing a drawdown approaching 44% from June’s peak.

Leverage magnified losses. Outstanding margin positions on Korean equities reached a record 29.2 trillion won in early July, concentrated in single‑stock exchange‑traded funds tied to Samsung and SK Hynix. Steve Kim, chief executive of Four Pillars, noted that many younger investors had highly leveraged bets on those chipmakers and that a portion of active crypto traders had shifted funds into semiconductor and AI names over the prior year.

Trading data show retail crypto activity in South Korea fell about 28% year‑over‑year as capital moved into chip stocks. Kim noted the market declines removed a large share of retail traders’ capital, leaving many unable to redeploy funds into digital assets even if they wanted to.

The sharp July 31 rebound followed the end of forced selling by a concentrated AI‑focused hedge fund run by Leopold Aschenbrenner, which lost about 67% in July and was compelled by margin calls to liquidate public holdings that were acquired by Citadel. An overnight rally on U.S. markets, led by Microsoft’s stronger‑than‑expected results and gains in semiconductor shares, supported the recovery. The KOSPI gained more than 1,000 points to close at 6,595.45 that day. Samsung rose about 19.6% to 247,000 won and SK Hynix jumped about 24% to 1.64 million won, with SK Hynix reaching its daily upper limit for the first time in 17 years. The Korea Exchange’s “sidecar” mechanism halted program trading for five minutes.

The rebound proved temporary. The index fell 4.86% the next trading day and stood at 6,153.55 by August 4, roughly 22% below its late‑June level. Volatility remained elevated after the month’s extreme moves, making recovery for previously leveraged retail accounts more difficult.

July’s decline exceeded single‑month drops recorded during the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis, making it the worst month in the KOSPI’s history. Market participants cite concentrated leverage in a small number of AI‑related chip stocks, changes in China’s chip supply chain, and outsized retail positions as primary factors behind the swings.

For retail traders who had rotated capital from crypto into Korean equities, losses in July reduced exposure across asset classes. Industry observers report the capital depletion from those retail accounts has been a factor in lower crypto trading volumes in South Korea and may delay any immediate flow of funds back into digital assets.