Leverage Undercurrents in the Global AI Bull Run
The global AI-driven stock rally has been impressive, but beneath the surface, leverage risks are mounting to dangerous levels. US margin debt has surged to $1.4 trillion, an all-time high, while leveraged ETF assets have doubled to $220 billion in just two months, reflecting a massive speculative bet on AI stocks using borrowed money.
KOSPI Turmoil Triggers Circuit Breaker
In South Korea, the KOSPI index experienced extreme volatility due to high leverage and concentrated holdings, triggering a circuit breaker. Korean retail investors have heavily used margin trading to buy AI-related stocks, and when the market turned, forced liquidations cascaded, amplifying the selloff.
Banks Warn of Deleveraging Spiral
Barclays and Morgan Stanley have both warned that the high concentration of leveraged derivatives could spark a negative deleveraging spiral. As asset prices fall, leveraged positions are forced to close, pushing prices down further in a self-reinforcing loop. Investors should closely monitor this systemic risk and avoid chasing the rally with excessive leverage.