# How Retail Debt Crashed South Korea’s AI-Led Stock Market > Source: > Published: 2026-07-13 15:23:39+00:00 **July 13, 2026**, (Inside AI) — South Korea's Kospi index plunged **9%** on Monday, deepening a **27%** loss over three weeks as AI stock jitters collided with a retail debt crisis. The sell-off marks a dramatic reversal for what was the year's top-performing equity market. Foreign investors dumped nearly **$13 billion** in Korean equities in June, but the rout was amplified by record retail margin debt. Brokerages automatically liquidated over **$100 million** in retail positions on Thursday as accounts ran out of cash, Seoul Economic Daily reported. The turmoil contrasts with Taiwan, another AI-heavy market, where the TAIEX index slipped just **2.3%** in the same period. Both indexes are dominated by chip giants: **Samsung Electronics** and **SK Hynix** account for **54–60%** of the Kospi, while **TSMC** holds about **40%** of the TAIEX. The divergence exposes how South Korea's retail leverage fueled a uniquely fragile boom. ## The Leverage Trap That Snapped In late May, Korean regulators launched domestic single-stock leveraged products to stem an exodus of retail money into US leveraged ETFs. Because rules restrict such products to stocks with over **10%** market weight, only **SK Hynix** and **Samsung** qualified. The products exploded in popularity, pushing margin debt to a record **$39 billion** in May, according to ValueTheMarkets. Retail investors borrowed heavily or used ultra-short-term options requiring minimal upfront payments. By June 10, leveraged investments hit limits at local brokerages, Reuters reported. When AI fears triggered a sell-off, the unwinding was brutal. Jefferies noted that the **16** single-stock leveraged ETFs tied to Hynix or Samsung, listed in late May, are down **30%** from their June 25 peak in asset terms. The Kospi itself is **22%** below its June 19 peak. As foreign selling intensified, retail investors lacked the firepower to absorb the shock. ## Taiwan's Cushion: Dividends Over Debt Taiwanese investors largely avoided this trap by favoring passive, high-dividend ETFs that provide steady payouts. This income focus encourages holding through downturns, insulating the TAIEX from forced selling. The contrast underscores how product design and investor behavior can make or break market stability during sector-wide corrections. Goldman Sachs' **Christian Mueller-Glissmann** called the AI selloff a "cyclical" event worsened by overleveraged retail positions, but said the structural AI trend remains intact. Jefferies echoed that AI stocks will stay attractive as long as the "AI arms race" continues. The crisis has already reshuffled global rankings: Nigeria's stock market, up **68%** this year in dollar terms, has now surpassed South Korea's **66%** gain, Bloomberg reported. As margin calls cascade, the episode serves as a stark warning about the perils of leverage in concentrated, hype-driven markets.