AI Summary
5 min readThe South Korean stock market just suffered its worst crash since the 2008 financial crisis. The Kospi index fell 22 percent in a single week, then bounced 15 percent days later. At its trough, the market was down 44 percent from its peak, wiping out $2 trillion in value. The trigger was a sudden unwind in the AI trade, but the mechanism that made the crash so violent was something far more specific: a new wave of single-stock leveraged ETFs that had become the most popular financial instruments in the country.
In late May, South Korea launched leveraged ETFs tracking two of its biggest chipmakers, SK Hynix and Samsung. These funds use borrowed money to multiply daily returns by two, three, or even five times. Retail investors piled in, hoping to capitalize on the AI boom. When sentiment soured—SK Hynix reported weaker-than-expected earnings, and AI euphoria began to lose steam—the leverage worked in reverse. Samsung plummeted 32 percent, SK Hynix crashed 40 percent, and the broader Kospi index entered a bear market. The two chip companies now make up roughly half of the entire South Korean stock market, so their collapse dragged everything down with them.
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What you'll learn
- 1 (00:00) **Korea's AI-Leveraged Crash & the US Domino Risk** - JJ introduces the episode: the Korean stock market crash is linked to AI speculation and leveraged ETFs, and he asks if it could spread to the US.
- 2 (01:15) **The KOSPI's Parabolic Rise and Collapse** - A five-year chart shows the KOSPI surged 265% from April 2025 before a sharp 38% peak-to-trough drop from June 22 to July 30.
- 3 (02:42) **How Leveraged ETFs Supercharged the Wipeout** - These new funds used borrowed money to multiply daily returns, making them wildly popular with retail investors chasing the AI boom.
- 4 (03:55) **The Bigger AI Bubble Unwind** - The Korean crash is not isolated; it's a symptom of a broader unwinding of the AI trade that has hit US chip stocks too.
- 5 (05:41) **Leverage: The Common Thread Between Korea and the US** - Leveraged ETFs are becoming normal in the US (2x and 3x), but they are inherently dangerous and can trigger rapid forced selling.
- 6 (07:02) **Scott's Take: Leverage as a Hidden Time Bomb** - Scott compares leverage to divorce: it always forces asset sales at the worst possible time.
- 7 (08:15) **Leopold Ash & Brenner: The First Domino** - The hedge fund that was all the rage blew up with 4x leverage, reaching $20-40 billion before collapsing in July.
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Show Notes
John Johnston (JJ) breaks reacts to Scott Galloway and Ed Elson as they discuss how a crash in the South Korean Kospi was caused by retail investors speculating with leveraged ETFs directly related to the AI bubble.
Referenced video:
South Korea’s Crash Is A Warning For U.S. Investors | Prof G Markets https://youtu.be/q77frNeCVc4
AI Bubble, Kospi, South Korea market crash, Scott Galloway, Ed Elson, Prof G Markets, leveraged ETFs, retail investors, AI stock crash, stock market crash, AI bubble domino effect, John Johnston, JJ, The John Johnston Lounge, Samsung, SK Hynix, single stock leveraged ETFs, tech stock crash, semiconductor stocks, margin calls, AI market risk, Prof G reaction
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Disclaimer: I am not a financial adviser and nothing in this content is financial advice. This content is for general education and entertainment purposes only. Do your own analysis and seek professional financial advice before making any investment decision.
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