South Korea’s AI Bubble Just Popped — America Could Be Next
In a Nutshell
South Korea's market crash was driven by extreme concentration in two chip stocks, leveraged ETFs, and retail speculation that triggered cascading margin calls when regulators warned of overheating. The US shows similar warning signs—top-10 stocks at 37% of the S&P 500, record margin debt, near-zero cash positions, and valuations at dot-com bubble levels—though America's market is structurally more diversified and lacks Korea's extreme single-stock leverage products. The core risk isn't total collapse but that if earnings growth disappoints or expectations normalize, a 20-25% drop could occur without a recession or catastrophe.
These notes were generated by AI and may contain inaccuracies.
Korea's stock market has just undergone the fastest and largest drop ever in history, having fallen more than 20% in the last few weeks. Many of the same conditions are showing up in the United States: extreme concentration in just a few stocks, a massive rally being driven by AI, record amounts of retail leverage, and everybody piling into the same trade while the market is priced at its most expensive level since the dot-com bubble.
Just like the S&P 500 in the United States, Korea has the KOSPI index, which for a while was one of the best performing markets on the planet. The problem started when just two stocks made up more than 50% of their entire stock market index, meaning their diversified index of stocks was basically a giant bet on memory chips.
Earlier this year, Korea approved a 2x single stock leveraged ETF product that had never really existed before. In the first few months, 13.8 trillion won was chasing a rally that had already tripled. On June 22nd, Korea's top financial regulator publicly warned that the leveraged products had become dangerously overheated and even said he wished he had blocked those ETFs from ever launching. This led to a frantic and dramatic sell-off where chip stocks fell, but because they were leveraged, it forced margin calls, forcing even more sales, forcing the price to fall even further, forcing even more sales. Regulators have now banned single stock leveraged ETFs entirely and tripled the minimum deposit just to trade the existing ones.
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