Behind the global AI-driven stock rally, leverage risks are mounting. U.S. margin debt has hit a record $1.4 trillion, and leveraged ETF assets doubled to $220 billion in two months. South Korea's KOSPI triggered a circuit breaker due to high leverage and concentrated positions. Barclays and Morgan Stanley warn that leveraged derivatives could trigger a negative spiral of deleveraging, amplifying market declines.
Leverage Underpinning the Global AI Rally
Hidden beneath the AI-fueled stock market euphoria is escalating leverage risk. U.S. margin debt has surged to a historic $1.4 trillion, while leveraged ETF assets have doubled to $220 billion over the past two months, reflecting aggressive investor bets on AI stocks. Meanwhile, South Korea's KOSPI index experienced violent swings and triggered a circuit breaker, exposing the vulnerability of leveraged positions during sharp market moves.
Institutional Warnings: Negative Spiral Deleveraging
Barclays and Morgan Stanley have warned that leveraged derivatives could set off a negative deleveraging spiral. A market pullback would force liquidations, intensifying selling pressure and amplifying losses. With margin debt and leveraged ETF assets both at all-time highs, any negative catalyst in the AI sector could trigger a sudden liquidity crunch.
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