TL;DR
· According to WSJ, the KOSPI rose by about 165% over the past year, but in the first half of 2026 foreign investors net sold KOSPI stocks by roughly $1 billion.
· Samsung Electronics and SK Hynix dominate the index’s rises and falls, and single-stock leveraged products further transmit chip-stock volatility to retail investors.
· Korean regulators have already warned about the risks of excessive leverage; the market may not reverse immediately, but drawdown losses are more likely to remain with local investors.

According to a July 6 article in WSJ Markets A.M., the Korea Composite Stock Price Index (KOSPI) has risen cumulatively by about 165% over the past year, making it one of the most eye-catching major stock indices globally. On the other hand, foreign capital is retreating from high levels. Data released under Korea Exchange-related reporting shows that in the first half of 2026, foreign investors net sold KOSPI stocks by about 148 trillion to 150 trillion won, equivalent to roughly $95 billion to $100 billion. For those staying on the exchange floor and continuing to chase the rally, more and more are local retail investors—and investors using single-stock leveraged products to amplify returns.

It’s not hard to identify the stars of this bull market. Samsung Electronics and SK Hynix benefit from demand such as AI servers and high-bandwidth memory, and are treated by capital as important entry points for Asian AI trading. The issue is that index gains, foreign investors cutting exposure, and retail investors adding leverage are occurring almost at the same time. When the market is led by a handful of chip stocks, and volatility is further amplified by high-risk products, the Korean market starts to look like a high-reward, high-elimination game: when prices rise, everyone wants in; when a pullback comes, the sharper question is who will bear the costs of liquidations and losses.

Up About 165% in a Year, But KOSPI Volatility Far Exceeds That of U.S. Stocks

KOSPI’s headline performance is striking enough. By the WSJ benchmark, the index rose by about 165% over the past year. Public-market data also corroborates the direction of the Korean stock market’s surge over the past year. Data from The Korea Fund shows that KOSPI rose 75.6% throughout 2025, closing at 4,214 points at the end of the year. A South Korean media outlet, MK, reported that from January 2 to July 1, 2026, KOSPI climbed from 4,309.63 points to 8,476.48 points, a gain of about 96.6%.

But this is not a smooth, steady bull run. The WSJ article, citing market data such as FactSet, says that over the past year KOSPI saw 77 single-day swings of at least 2%, 44 days with moves above 3%, and 23 days above 5%. Over the same period, the S&P 500 recorded only 5 single-day moves of at least 2%, with very few moves exceeding 3% or 5%.

For short-term capital, high volatility is itself an attraction. For ordinary investors, a wrong call on direction can also quickly wipe out earlier gains. The Korean market is not simply being driven by macro expectations; it is increasingly being influenced by a small number of heavyweight stocks. After Samsung Electronics and SK Hynix increased their weight in the index, the AI-chip narrative amplifies the “making money” effect—but when expectations loosen, selling pressure can spread across the entire index as well.

Two Chip Stocks Prop Up the Rally, and Single-Stock Leveraged Products Add Fuel

The core of this Korean rally is the AI chip chain. Samsung Electronics and SK Hynix benefit from data center investment and demand for high-performance memory. For many investors, buying into the Korean market is, to some extent, a bet that AI memory demand will keep surging.

Market enthusiasm is not coming only from spot stocks. Single-stock leveraged products tied to individual names such as SK Hynix are making the rally more exciting—and also making the market more fragile.

The most closely watched are the daily leveraged products that offer 2x long exposure to SK Hynix. Their mechanics are straightforward: if the underlying stock rises on a given day, the product aims to deliver roughly two times the intraday return; if the underlying stock falls, losses are also magnified. Because these products typically require daily rebalancing, when the price of the underlying stock moves sharply, the product’s own buying and selling demand can continue to amplify market swings.

Before similar products were approved locally in South Korea, some investors participated in trading through products listed in Hong Kong. Data from the Hong Kong Stock Exchange and CSOP shows that products such as “CSOP SK Hynix Daily 2x Leveraged Product” are already available in Hong Kong. As SK Hynix’s share price strengthened, these tools quickly became popular, serving as an entry point for retail investors seeking the chip stock’s price sensitivity with leverage.

Korean financial regulators have begun issuing risk warnings. An Aju Press report said that on June 17, the Financial Supervisory Service of South Korea convened institutions to flag issues related to concentrated bets and excessive leverage. The assets under management of the 16 local single-stock leveraged and inverse ETF products are about 11.3 trillion won, with average daily trading volume of about 8.3 trillion won. At one point, the trading value of SK Hynix’s single-stock leveraged ETF products was equivalent to 37.7% of the trading volume of the underlying stock.

This is also the source of the “Squid Game” analogy. In the WSJ article, Maxence Visseau, founder of Arkevium Capital, described that for a group of retail investors chasing thrills, “volatility itself is the attraction.” But daily leveraged products are not the same as holding stocks over the long term. Choppy markets cause “decay,” and when a sharp drawdown occurs, investors bear not just ordinary stock losses, but losses that are magnified.

Foreign Selling Concentrated in Semiconductors, Local Capital Takes Over the High-Volatility Market

The most conflicting aspect of this Korean stock-market rally is that when the index’s gains are astonishing, foreign investors have not kept adding—on the contrary, they have sold KOSPI stocks heavily.

According to Korea Exchange reporting, in the first half of 2026 foreign investors net sold about 148 trillion to 150 trillion won worth of KOSPI stocks. SBS reported that foreign selling was concentrated in the two major semiconductor stocks—Samsung Electronics and SK Hynix together accounted for about 92% of the total net foreign selling. MK also listed that Samsung Electronics and SK Hynix were net sold by foreign investors for 72.6 trillion won and 57.1 trillion won, respectively.

Monthly data also shows that the pressure has not eased. An Aju Press report said that in May foreign investors sold about 47.02 trillion won worth of Korean stocks, equivalent to roughly $30.5 billion. As of June 26, KOSPI still recorded large net foreign selling. What needs to be distinguished is that these figures mainly point to stocks listed in South Korea, and do not equal all Korean assets, because in some months foreign investors were still buying Korean bonds.

As a result, the capital structure has diverged. On one side, foreign investors remain cautious about high concentration and high volatility. On the other, local retail investors continue chasing the most popular chip stocks and leveraged instruments. Regulators can require more comprehensive risk disclosures, investor education, and suitability management—but the risk does not come from any single product. Instead, it comes from the combination of several factors: the index relies on a handful of chip stocks; the AI narrative attracts momentum-chasing capital; leveraged instruments amplify short-term volatility; and foreign investors are reducing their stock exposure.

As long as the rally continues, the market will interpret these factors as a strong trend. Once the trend turns, they may simultaneously become amplifiers of a selloff.

The Rally May Not End Immediately, But the Question of Loss Allocation Is Already on the Table

The Korean market has not collapsed, and AI memory demand has not been disproven. Samsung Electronics and SK Hynix are still key companies in the global semiconductor supply chain, and AI-server buildout continues to support demand for high-bandwidth memory. Simply describing this rally as the eve of a bubble bursting is not accurate.

A more realistic problem is that once gains are too large, volatility is too high, and the chips are increasingly concentrated in the hands of local retail investors and leveraged products, the question becomes: who will bear the risk?

The Korean story also serves as a warning to the U.S. market. The U.S. market is bigger and deeper, and similar products may not be enough to dominate index performance right now. But the weight of large tech stocks and the AI narrative within the index is also high, and investor demand for high-elasticity (high-beta) products is rising. When a single theme, a small number of leading companies, and leveraged instruments are tied together, markets can rally quickly—but risk can accumulate quickly as well.

In the short term, whether the Korean rally can continue still depends on AI chip demand, the earnings of Samsung Electronics and SK Hynix, whether foreign capital returns, and whether regulators can cool down high-leverage trading. The issues left behind by foreign capital withdrawals will not automatically disappear. When retail investors are willing to pay for volatility, the market looks like a casino; and when volatility turns unfavorable, the true factor determining loss allocation is the final stage of this “Squid Game.”

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