What India's investors can learn from South Korea's market meltdown
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- South Korea's Kospi dropped about 40% from its June all-time high over six weeks, with circuit breakers halting trading four times in July alone after an 8% decline triggered a 20-minute pause on the Korea Exchange.
- Leveraged ETFs tracking Samsung and SK Hynix — 16 listed in late May — amplified both gains and losses because they must buy as stocks rise and sell as they fall, eventually influencing prices rather than just tracking them.
- SK Hynix lost 27% of its market value in three late-July trading sessions on concerns about US AI data-center overbuilding, disappointing earnings, and potential Chinese competition, dragging Samsung lower and the broader index with it.
- India's MTF book crossed ₹1 trillion for the first time in September 2025; Zerodha co-founder Nithin Kamath called the growth his 'biggest nightmare' given the Korean turmoil, warning that a sharp correction could trigger severe forced selling in small- and mid-cap stocks.
- Concentration disguised as diversification: a plain Kospi index fund bought in June effectively put more than half an investor's money into two semiconductor companies serving the same end-market — a market-cap-weighting outcome that masqueraded as a diversified portfolio.
- Behavioral trap: a Korean investor who saved 15 years for an apartment took a leverage course, saw early gains of 'a month's salary every other day,' then lost more than half his position and can no longer make his installment payment — one of several similar accounts circulating through July.
- Re-balancing as the free lunch: experts cited asset allocation, diversification and re-balancing as the basic disciplines that could have blunted the crash, echoing Harry Markowitz's dictum that 'diversification is the only free lunch in investing.'
Why it matters: India's ₹1 trillion MTF book mirrors the leveraged-ETF dynamics that flattened the Kospi, with Zerodha's Nithin Kamath calling it 'by far the biggest risk' the broker has taken since 2010. He warned a sharp correction could trigger cascading forced selling in small- and mid-cap stocks that sit outside the F&O segment, where successive lower circuits can trap both investors and brokers.
