South Korea's KOSPI index rebounded 18% on July 31, its biggest one-day jump ever, after crashing 33% over the rest of July. The July decline marked the worst month in the index's history, surpassing drops during the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis. The crash deepened starting July 28 when news that China had begun mass production of homegrown chipmaking tools sent the index down 10.8% in a single session. An SK Hynix earnings miss the following day intensified the selloff, with Samsung Electronics and SK Hynix absorbing the worst losses. The July 31 rebound was triggered by the liquidation of Leopold Aschenbrenner's AI fund to Citadel and a Microsoft earnings beat that reignited confidence in AI infrastructure spending. Despite the reversal, the KOSPI remained about 22% below its late-June close by August 4, and Steve Kim of Four Pillars noted that Korean retail traders, many of whom had shifted capital from crypto to stocks, were left with depleted funds.
China Chipmaking News Triggered 10.8% KOSPI Drop on July 28
The KOSPI's July decline surpassed the single-month drops recorded during the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis. The rout deepened starting July 28, when news that China had begun mass production of homegrown chipmaking tools sent the index down 10.8% in a single session, triggering multiple trading halts. Samsung Electronics and SK Hynix, the two stocks that had powered Korea's AI-driven rally over the past year, absorbed the worst of the decline. SK Hynix's earnings miss—a record quarterly revenue that still fell short of analyst estimates—deepened the panic the following day. Measured from June's record high, the drawdown approached 44%.
Record 29.2 Trillion Won in Leveraged Bets Amplified July Losses
Steve Kim, chief executive and co-founder of Four Pillars, a Seoul-based blockchain research firm, stated that outstanding leveraged bets on Korean equities hit a record 29.2 trillion won (roughly $19.7 billion) in early July, with much of it concentrated in single-stock ETFs tied to Samsung and SK Hynix. Kim said, "Many younger investors had taken leveraged positions in Samsung Electronics and SK Hynix, expecting the rally to continue. There is definitely a generational divide in sentiment. Younger investors have been hit much harder, while older investors tend to be in a better position."
Kim noted that Korea's stock and crypto markets have historically moved largely independently, but the two are connected through a shared pool of traders. "Many of Korea's most active crypto traders are also the same people who aggressively trade Korean equities with leverage," he said. Over the past year, many of them shifted focus away from crypto toward what they saw as a bigger opportunity in Korean stocks. That shift aligns with data showing Korea's retail crypto trading volume fell 28% year-over-year as capital rotated into semiconductor and AI names. "The recent market crash wiped out a significant portion of their capital," Kim said. "Even if they now want to rotate back into crypto, many simply don't have the money left to do so."
AI Fund Liquidation and Microsoft Earnings Sparked July 31 Rebound
The KOSPI gained 17.91% on July 31, closing at 6,595.45 after adding more than 1,000 points, its biggest one-day jump ever. Samsung Electronics rallied 19.57% to 247,000 won, and SK Hynix jumped 24.05% to 1.64 million won, hitting its daily upper limit for the first time in 17 years. The move triggered the Korea Exchange's "sidecar" mechanism, halting program trading for five minutes.
Two forces converged to spark the bounce. The first was the unwinding of Situational Awareness, an AI-focused hedge fund founded by former OpenAI researcher Leopold Aschenbrenner that lost 67% of its value in July on concentrated, leveraged bets. Margin calls forced the fund to liquidate its public holdings to Ken Griffin's Citadel, removing one source of pressure on Samsung and SK Hynix. The second was an overnight rally on Wall Street where Microsoft's earnings beat reignited confidence in AI infrastructure spending and sent the Philadelphia Semiconductor Index up 8%. Amazon's results reaffirmed demand for AI monetization, though Meta's shares fell on capex-driven cash-flow concerns.
The relief did not last. The KOSPI dropped 4.86% the next session, and by August 4, the index had slipped further to 6,153.55, still down about 22% from its late-June level.
Korean Retail Crypto Trading Volume Fell 28% Year-Over-Year
Kim drew a direct parallel to the US, where crypto attention has similarly faded as capital and focus concentrated in AI. He stated that only a small percentage of investors actually profited from the Korean stock rally, with much of those gains going to foreign investors. "Once again, domestic retail investors effectively became exit liquidity for overseas capital," he said. Kim does not see the reversal as a positive for crypto, stating that the broader wipeout leaves Korean retail investors more risk-averse and with less money to deploy anywhere, crypto included.
FAQ
What caused South Korea's KOSPI stocks to crash 33% in July?
The KOSPI crashed 33% in July, with the decline deepening starting July 28 when news that China had begun mass production of homegrown chipmaking tools sent the index down 10.8% in a single session. An SK Hynix earnings miss the following day intensified the selloff. Record leveraged bets of 29.2 trillion won in early July, concentrated in Samsung Electronics and SK Hynix, amplified the losses.
Why did the KOSPI rebound 18% on July 31?
The KOSPI rebounded 18% on July 31 due to two factors: the liquidation of Leopold Aschenbrenner's AI fund to Citadel, which removed forced selling pressure on Samsung and SK Hynix, and a Microsoft earnings beat that reignited confidence in AI infrastructure spending and sent the Philadelphia Semiconductor Index up 8%.
How did the Korean stock market crash affect crypto traders?
Steve Kim of Four Pillars stated that many of Korea's most active crypto traders had shifted capital from crypto to Korean stocks over the past year, contributing to a 28% year-over-year decline in retail crypto trading volume. The July crash wiped out a significant portion of their capital, leaving many without funds to rotate back into crypto.
