Asian stock markets experienced a massive sell-off, with total losses exceeding $600 billion. The epicenter of the crash was the technology sector, particularly chip manufacturers, triggering a chain reaction across the region.
South Korea: The Main Epicenter of the Crisis
The South Korean market took the hardest hit. The KOSPI index plunged 6.37%, wiping out 388.6 trillion won (about $261 billion) in market capitalization. During the trading session, the decline reached 7.6%, though losses narrowed somewhat by the close. Key victims were tech giants: Samsung shares fell 8.2%, and SK Hynix dropped 11.6%.
Notably, during this session, the exchange circuit breaker was triggered for the eighth time this year. This already accounts for more than half of the total activations since 2000, setting an absolute record for a single year. Such high volatility is directly linked to the boom in leveraged products. According to my analysis, leveraged ETFs on underlying Samsung and SK Hynix shares now account for over 70% of trading volume in the $4.1 trillion market, compared to about 30% before their launch in May. In the two months since launch, some of these ETFs have crashed roughly 40%, despite their total assets exceeding $10 billion in June.
Japan, China, and Taiwan: A Wave of Sell-Offs
Japan's Nikkei index lost 2.79%, equivalent to 35.1 trillion yen (about $209 billion). The Chinese market also faltered: the SSE index fell 2.2%, "destroying" 630 billion yuan (about $123 billion). Taiwan's market slipped 1%, losing 1.2 trillion Taiwanese dollars (about $40 billion).
Causes and Consequences
The trigger for the sell-off was the collapse of U.S. memory chip stocks, which instantly transmitted to Asian markets. An additional catalyst was the Bank of Korea's decision to raise interest rates, adding pressure to an already overheated market.
In response to the crisis, South Korea's Financial Services Commission plans to raise the minimum deposit threshold for margin trading from 10 million won (about $6,735) and "stretch" daily rebalancing across the entire session. These measures come amid a record foreign capital outflow of $110 billion and hundreds of thousands of forcibly closed retail investor accounts over the year.
My comment: The current situation is a classic example of a bubble burst inflated by cheap money and leverage. The Korean chip market, long a growth driver, has turned into an Achilles' heel. Regulatory measures, though belated, are necessary to prevent a systemic crisis. However, investors should prepare for further volatility: the fundamental problems in the global semiconductor supply chain remain unresolved.