Asian stock markets experienced a massive crash, losing over $600 billion in a single trading session. The main triggers were a sharp decline in chipmaker and tech giant stocks, as well as an unexpected tightening of monetary policy in South Korea.
The epicenter of the sell-off was in South Korea. The KOSPI index plunged 6.37%, causing 388.6 trillion won (about $261 billion) to evaporate from the market. This was the strongest daily drop in recent months and triggered a chain reaction across the region.
Scale of losses by country
Japan's Nikkei index lost 2.79%, reducing market capitalization by 35.1 trillion yen (approximately $209 billion). China's SSE fell by 2.2%, "destroying" 630 billion yuan (about $123 billion). Taiwan's market also did not hold up, losing 1% of its value, equivalent to 1.2 trillion Taiwanese dollars (about $40 billion).
The catalyst for the decline was the collapse of U.S. memory manufacturer stocks, which instantly spilled over to Asian technology companies. Additional pressure came from the Bank of Korea's decision to raise its key interest rate, heightening investor fears about slowing economic growth and tightening liquidity.
Korean crisis: underlying causes
The situation developed most dramatically in South Korea. During the trading session, the KOSPI fell by 7.6% before partially recovering. Shares of key tech giants suffered colossal losses: Samsung dropped 8.2%, and SK Hynix plunged 11.6%. For the eighth time this year, the market circuit breaker was triggered — this is already more than half of all activations since 2000, an absolute record for a single year.
The root of the problem lies in the boom of leveraged products. Leveraged ETFs, launched in May, now account for over 70% of trading volume on the South Korean market worth $4.1 trillion. Before their introduction, this figure was around 30%. More than ten leveraged ETFs on Samsung and SK Hynix shares have fallen by about 40% since launch, although their total assets exceeded $10 billion in June.
In response to the crisis, the local regulator is preparing new measures. The Financial Services Commission intends to raise the minimum deposit threshold from 10 million won (about $6,735) and "stretch" daily rebalancing across the entire session. This comes amid a record foreign capital outflow of $110 billion and hundreds of thousands of forcibly closed retail investor accounts over the year.
My analysis: The current situation is a classic example of the domino effect, where a collapse in one sector (chips) is amplified by structural issues (leverage) and macroeconomic pressure (rates). Investors should prepare for increased volatility, especially in Korean tech stocks, until the regulator finds a way to curb excessive speculation.