South Korea's KOSPI suffered its worst single-day rout since March on Tuesday, crashing 9.99% to 8,203.84 and triggering a market-wide trading halt. The selloff, driven by a retreat from semiconductor heavyweights Samsung Electronics and SK Hynix — each down more than 12% — wiped out gains from a record high above 9,100 points set just Monday. The damage spread to crypto: Bitcoin slid below $63,000, briefly touching $62,000, and total crypto liquidations hit $714 million over 24 hours, with Bitcoin traders alone losing $215 million.
The circuit breaker that kicked in
South Korea's exchange halted all trading for about 20 minutes after the KOSPI hit its 10% daily decline limit. It was the first such halt since the COVID panic in March 2020. The broader MSCI Asia-Pacific index fell 2.9% and Japan's Nikkei 225 dropped roughly 3%, as weakness in US tech shares and expectations of persistently elevated interest rates rippled across the region.
Leveraged ETFs made it worse
Leveraged exchange-traded funds tied to Samsung and SK Hynix, launched in late May, ballooned from $3 billion to over $9 billion in combined assets — with retail investors holding about 92% of the shares. These funds must buy or sell underlying securities and derivatives each day to maintain their target exposure, a mechanism that can amplify market moves. Goldman Sachs had warned before the launch that a 5% swing in Korean stocks could force about $4.7 billion of dealer rebalancing flows. Tuesday delivered nearly double that shock.
Regulator admits rushing the green light
Financial Supervisory Service Governor Lee Chan-jin conceded Tuesday that authorities had been too hasty in approving the leveraged ETFs. The admission comes as South Korean retail investors sit on record debt of roughly 60 trillion won ($39 billion) accumulated by the end of May to ride the rally. The FSS is now considering stabilization measures — though specifics like leverage limits or trading restrictions haven't been announced.
Crypto takes a hit too
The selloff wasn't confined to stocks. Bitcoin dropped about $1,500 within hours, settling near $62,300 after an intraday low near $62,000. Ether positions saw $177 million in forced closures. Overall crypto liquidations reached roughly $190 million in the past hour and $714 million over 24 hours, according to data from major exchanges. The correlation between Korean equities and digital assets remains tight, partly because many of the same retail traders active in stocks also trade crypto.
The FSS is expected to detail its stabilization plan in the coming days. For now, the KOSPI's year-to-date gain has been slashed to about 75% from a peak of 95%, and the leveraged-ETF experiment that Seoul fast-tracked is under intense scrutiny.
