Leverage Risks Behind the AI Bull Run
The current global AI bull market is fueling exuberance, but the accompanying leverage risks are alarming. Data shows U.S. margin debt has surged to $1.4 trillion, a historic peak. Leveraged ETF assets have doubled to $220 billion in the past two months, indicating massive capital inflows into AI-related themes via leveraged instruments, rendering markets increasingly fragile to shocks.
South Korea Circuit Breaker: A Case in Point
South Korea's KOSPI index experienced sharp volatility and triggered a circuit breaker recently, driven by high leverage and concentrated positions. This event is not isolated but reflects a global leverage chain. Forced liquidations during sell-offs can trigger cascading effects, amplifying price declines.
Investment Banks Warn of Deleveraging Spiral
Barclays and Morgan Stanley have warned that excessive growth in leveraged derivatives markets may trigger a negative deleveraging spiral. In the context of an AI bull market, a liquidity squeeze or disappointing fundamentals could rapidly amplify losses through derivative feedback loops, posing systemic risks to risk assets including cryptocurrencies. Investors should closely monitor leverage dynamics and implement prudent risk management.