Key facts
- The Kospi index fell 5% on Monday, with Samsung Electronics and SK Hynix down 9% each.
- This followed a record 178% rebound on Friday after a steep July decline.
- South Korean regulators have suspended new leveraged ETF listings and advertising.
- AI hedge fund Situational Awareness lost 67% in July due to margin calls on concentrated positions.
- The fund was forced to sell its public equities portfolio to Citadel.
South Korea's benchmark Kospi index experienced significant volatility, closing 5% lower on Monday after a record 178% rebound on Friday. This followed one of the index's steepest monthly declines in July, which saw it fall roughly a third from its June peak. The turmoil highlighted the risks associated with leveraged trading, particularly single-stock leveraged ETFs, prompting South Korean regulators to temporarily suspend new listings and advertising for these products. Minimum deposit requirements for retail investors were also raised.
Concerns over amplified losses and forced selling during market stress were echoed by Charu Chanana, chief investment strategist at Saxo. The same investing trap also impacted institutional investors, with the AI hedge fund Situational Awareness, founded by Leopold Aschenbrenner, losing 67% in July. The fund, which had used borrowed money for concentrated positions in AI-related companies like SK Hynix, CoreWeave, and SanDisk, was forced to sell most of its public equities portfolio to Ken Griffin's Citadel due to margin calls.
Chanana noted that both the Kospi selloff and the collapse of the AI fund illustrate how strong conviction combined with excessive concentration and leverage can lead to forced selling and heavy losses during market corrections. However, she emphasized that these events do not undermine the long-term investment case for artificial intelligence, but rather underscore the importance of portfolio construction and risk management.