Kospi's 40% Crash: Leverage Lessons for Indian Investors
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- Kospi tumbled roughly 40% from its June all-time high over six weeks, triggering circuit breakers four times in July alone — an 8% drop halts all trading for 20 minutes on the Korea Exchange.
- Leveraged ETFs tracking Samsung and SK Hynix amplified the crash; 16 such funds were listed in late May, and the forced-buying-as-prices-rise, forced-selling-as-prices-fall mechanics turned them from passive trackers into active price movers.
- SK Hynix lost 27% of its market value in three late-July sessions on fears US tech giants had overbuilt AI data centres and posted disappointing earnings, dragging Samsung and the broader index down with it.
- India's margin trading facility (MTF) book crossed ₹1 trillion for the first time in September 2025, offering 2-5x leverage to retail investors — and Zerodha co-founder Nithin Kamath called it his 'biggest nightmare' on X, explicitly citing the Korean crash.
- Kospi's free-float market-cap weighting meant a 'diversified' index fund was effectively a concentrated bet on Samsung and SK Hynix — two chipmakers serving the same AI end-market — illustrating how passive labels can mask single-sector exposure, per QED Capital's Anish Teli.
- A Korean retail investor who leveraged 15 years of apartment savings into Samsung stocks described early gains of 'a month's salary every other day' evaporating into a 50%-plus loss, leaving him unable to secure a loan or make his installment payment — the cautionary tale Dhawan of Plan Ahead Wealth Advisors says shows the cost of chasing narratives.
Why it matters: With India's MTF book crossing ₹1 trillion and retail leverage growing rapidly, Indian investors now face the same forced-selling dynamics and index-concentration risks that wiped out leveraged Korean portfolios in July — a danger Zerodha's Nithin Kamath has publicly flagged as his 'biggest nightmare' since 2010.
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