A 26-year-old Hong Kong trader, employed for only six months, was arrested after allegedly using a company account without authorization to place a highly leveraged bet on a South Korea-linked ETF.
According to the information provided, the trader used a company account between Jan. 9 and July 20, 2026, diverted HK$50 million into margin financing, and bought Southern Dongying SK Hynix Daily Leveraged (2x) ETF, listed in Hong Kong under stock code 7709. The position reportedly showed strong unrealized gains while South Korean equities were still rising in the first half of the year. That changed quickly. As the Korean market fell sharply from June into July, the leveraged exposure turned into a HK$150 million loss.
A market that went from wealth stories to forced selling
The trader’s case reflects a bigger story in South Korea’s stock market in 2026.
In the first half of the year, AI computing demand surged, high-end HBM memory chips moved into short supply, and prices climbed. Samsung Electronics and SK Hynix, the two dominant global memory makers, posted sharply stronger results. Their shares reached gains of as much as 2x and 3x during the year, helping drive the KOSPI into one of the best-performing major markets in the world in the first half.
Retail investors in South Korea were the first to pile in. In a market culture where stock trading is deeply embedded, university students and office workers alike were talking about Samsung and SK Hynix on social media and in workplace break rooms. Some investors committed their savings. Others opened margin accounts to chase the rally. Some office workers even applied for personal credit loans and put the money into stocks.
A Seoul-based internet worker wrote on social media that an initial 20 million won investment in SK Hynix at the start of the year had grown to more than 50 million won in unrealized profit by the June peak, adding that it felt like another six months could make a down payment on an apartment in Gangnam possible. A worker in South Korea also told Baobian that a few shares of Samsung, SK Hynix and several index funds bought earlier in the year had gone on to return more than 2x. 「If I had known, I would have bought more,」 the person said.
Stories like these spread quickly and fed fear of missing out. Investor Shi Meng, who has long tracked cross-border markets, said many people seemed to view the move as 「a once-in-a-lifetime chance to get rich」 and were willing to commit everything, including substantial leverage.
Hong Kong became a channel for cross-border positioning
The rally did not stay inside South Korea. Hong Kong became one of the main venues for investors looking to gain exposure.
Two Hong Kong-listed leveraged ETFs — one tracking a 2x long position on SK Hynix and the other a 2x long position on Samsung Electronics — were launched in mid-2025 and arrived almost exactly at the start of the move. Within roughly a year, they had become some of the most closely watched cross-border products in the Hong Kong market.
For ordinary Hong Kong investors, major brokerages had generally not made direct trading in Korean single-name stocks widely available. Those 2x products became the easiest route into the trade.
The two ETFs were also approved by the Hong Kong Securities and Futures Commission and were included on the list of financial assets recognized for investment immigration purposes. That brought in some high-net-worth money seeking both capital appreciation and identity planning. Speculative capital and allocation capital moved in together, lifting both assets under management and trading activity.
Mainland Chinese investors were more restrained. Because of compliance limits on access channels, many of them used public funds and ETF products, including China-Korea semiconductor ETFs, to take indirect exposure.
A university student investor identified as Xiaojiu entered the stock market in 2023 and began following South Korea in the second half of 2025. About 30% of the portfolio was tied to Korean equities, all held indirectly through public funds and ETFs. Within half a year, a position of only a few thousand yuan had multiplied several times, and unrealized gains briefly approached 20,000 yuan.
In Xiaojiu’s view, access barriers were the biggest reason mainland investors did not directly participate in size, and that also meant many were not deeply exposed when volatility turned extreme.
Some investors stayed out altogether. One domestic investor focused on technology said she never built a heavy position in Korean equities. In her view, leverage in the Korean market was too aggressive, and the culture of nationwide stock speculation made the swings even bigger. When the market kept rising without pause, that made her less comfortable rather than more willing to buy.
June and July brought circuit breakers again and again
The turning point arrived in June.
On June 8, South Korea’s stock market triggered a circuit breaker during the broader rally. At the time, sentiment was still elevated, and many institutions and retail traders treated the drop as a technical pullback rather than the start of a deeper unwind.
Then on June 23, Samsung Electronics and SK Hynix both plunged more than 12%, and the fall in those two heavyweight names dragged the broader market lower.
Just three days later, on June 26, the KOSPI triggered another circuit breaker. Fear started to appear, yet many retail investors still bought the dip, convinced that the longer-term AI memory thesis remained intact and that the decline was only a fresh entry point.
The selling did not stop in July. On July 13, a broad overnight selloff in U.S. chip stocks spilled into South Korea, where the KOSPI dropped rapidly after the open and hit another circuit breaker. Each halt eroded confidence a little more. Dip-buying calls weakened, while selling pressure intensified.
The most severe stretch came at the end of July. On July 28 and July 29, the KOSPI triggered circuit breakers on two straight trading days, marking the darkest point of the correction. South Korean media widely covered the market collapse. A large brokerage added investor psychological counseling services to calm retail clients who were struggling emotionally. Many ordinary investors who had entered with leverage near the highs lost all of their principal and were left owing money to brokerages.
The damage reached Hong Kong as well. That was the backdrop for the case involving the trader in Central, who had used HK$50 million from a company account and layered it onto a product that already carried 2x leverage. Once the market broke lower, the losses accelerated and eventually opened a HK$150 million hole, shaking Hong Kong’s asset management circles after the case came to light.
Why South Korea’s market swings became so extreme
The report points to several reasons South Korea’s semiconductor-driven rally produced such sharp and repeated dislocations.
The most direct trigger was widespread leverage. Korean retail investors commonly used leverage to trade stocks, and the government had also promoted many leveraged fund products. A large share of those products was concentrated in Samsung Electronics and SK Hynix. On the way up, leverage pushed prices higher. On the way down, forced liquidations created chained selling and fed a negative loop.
Index construction added another layer of risk. Samsung Electronics and SK Hynix together accounted for about half of the KOSPI Composite Index, meaning the broader market was heavily tied to just two memory-chip leaders. In a more balanced market, sectors such as consumer and finance can offset weakness in technology. In South Korea’s case, swings in the memory cycle translated much more directly into system-wide market risk.
There was also a valuation trap. Memory chips are a strongly cyclical business with clear commodity characteristics, and profits are heavily shaped by supply and demand. Yet many retail investors were valuing these companies like growth stocks.
Shi Meng said cyclical stocks cannot be judged on price-to-earnings ratios alone. At the peak of a cycle, profits are often at their highest and the P/E ratio can look the lowest, but that often signals a top rather than an ideal entry point. Professional investors understand that pattern and may gradually sell into what retail investors see as a cheap stock at a high point, leaving late buyers to absorb the risk.
The investor who stayed on the sidelines also questioned how long memory price increases could last. 「Memory prices have risen too much now, and that seriously affects consumers’ ability to buy electronics such as phones and computers. Prices are rising because AI demand has surged, but consumer demand will be suppressed,」 she said.
The pattern, as described in the report, is familiar: once a market is dominated by a single bullish narrative and too many participants start to believe prices only move one way, a reversal can be close.
After the slide, investors changed positions and playbooks
By early August, South Korean equities had entered a period of consolidation after regulators moved to restrict leveraged products and semiconductor export data came in strong.
Even so, the damage from the selloff had not faded. On social media, the public mood shifted quickly from wealth flaunting tied to a so-called golden era to posts describing heavy losses and emotional distress.
Investors caught in the cycle began to reassess their strategies.
Xiaojiu did not add to Korean equity exposure after the correction. Instead, the investor gradually reduced those positions and redirected capital toward undervalued traditional assets in mainland Chinese and Hong Kong markets, hoping to find better returns in sectors that had been oversold.
Xiaojiu said the biggest lesson from the episode was to treat market euphoria as a contrarian signal: 「When everyone around you holds the same consensus, you should be more cautious.」 The investor also said the next goal is to track major industry trends more closely and hold positions longer to avoid selling too early because of short-term price swings.
Shi Meng, described in the report as a value investor with 10 years of market experience, said he never joined the high-level speculation in Korean stocks. He stuck to a framework of not predicting short-term moves and insisting on a margin of safety in valuation. Based on current valuation levels and prior gains, he judged Korean equities to be expensive and still vulnerable to sharp swings, so he kept most of his capital in undervalued Hong Kong stocks instead.
His investment rules remained the same: avoid leverage, position against the crowd, stay inside one’s circle of competence, and put the margin of safety first. 「When the market is extremely gloomy and confidence is gone, that may actually be a good buying opportunity. When the market is very excited and extremely hot, that may be the time to sell,」 he said.
The cautious domestic investor also said she had started watching for a new entry window. 「Overbought conditions have eased, and I think it can be invested in now,」 she said.
Still, she has not moved in aggressively. Her focus remains on memory-chip prices and changes in supply and demand. In her view, memory prices cannot rise without limit. Weakening consumer demand and gradually expanding supply should eventually push prices back toward normal levels, which is part of the cycle. Throughout the move, she said, her principle was not to join sentiment-driven speculation, not to be swept up by either euphoria or panic, and to make decisions based on industry fundamentals.
The article was originally published by the WeChat account Baobian, with Gao Ze named as the author.