Key facts
- South Korean bank worker Yongjoon Kim lost 20 million Korean won ($14,000) in July due to market swings.
- The Kospi index, known for its volatility, experienced one of its sharpest corrections between June and August.
- Investors who used leverage to invest in tech stocks have been particularly hard-hit, with some seeing investments halve.
- An estimated 1.2 million South Korean personal investor accounts faced margin calls by the end of July.
- Concerns over the significant spending on artificial intelligence have been identified as a contributing factor to the sell-off.
South Korean investors, particularly younger individuals, are facing significant financial losses due to extreme volatility in the nation's tech-heavy Kospi stock index. The index, which had more than doubled in value by mid-June, experienced a sharp correction, plunging to 5,500 points from over 9,000 within weeks, before recovering to around 6,800 points. Concerns over the substantial investments being made in artificial intelligence are cited as a primary driver for the recent sell-off.
Individual investors like Yongjoon Kim have been severely impacted, with Kim losing approximately $14,000 on his tech investments, money intended for a down payment on a home. Woongsa Kim saw his investment in chipmaker SK Hynix, which had quadrupled earlier in the year, fall to half its peak value. The extreme swings have been exacerbated by leveraged trading, a growing trend among retail investors, which has led to margin calls for an estimated 1.2 million South Korean investor accounts by the end of July.
Analysts note that the euphoria surrounding AI stocks led some investors to take out loans, amplifying both potential gains and losses. Chanyong Park, after seeing significant profits from US-listed Nvidia shares, invested heavily in SK Hynix, only to lose around $10,000. Other investors, like Youngji Park and college student Soomin Yi, also experienced substantial declines in their holdings of Samsung and SK Hynix, respectively, regretting speculative investments made out of fear of missing out (FOMO).
The volatility in the Kospi is raising concerns about similar trends in other tech-heavy markets, such as Japan's Nikkei 225. However, experts suggest that more diversified global markets, including the US equity markets, are less likely to experience such extreme swings. The episode serves as a cautionary tale for investors, especially young ones, to diversify their portfolios and avoid putting all savings into a single basket, a lesson learned by Yongjoon Kim, who also holds shares in overseas markets.