Stock Market Plunges, Circuit Breakers! South Korea Takes the Latest Action →

On July 16, the stock markets of South Korea and Japan collectively plunged.

The South Korean KOSPI index fell more than 6% in early trading. Around 8:10 a.m. Beijing time, the Korea Exchange launched a temporary trading suspension mechanism for the KOSPI index. Samsung Electronics fell more than 6%, and SK hynix fell more than 10%. The Nikkei 225 index at one point fell by more than 2.5%.

In terms of the news, the Bank of Korea raised interest rates by 25 basis points to 2.75%, marking the first rate hike since January 2023, which is in line with market expectations.

The Bank of Korea said it is necessary to monitor the high volatility of exchange rates. It will assess the timing of further increases in inflation pressure, trends in improvements in the domestic economy, and financial stability. There are still uncertainties regarding the semiconductor industry, developments in the Middle East, and changes in the trade environment.

On Thursday, South Korean President Lee Jae-myung urged South Korean exchanges to formulate ETF risk-mitigation measures as soon as possible. At a policy meeting held in Seoul on Wednesday, Lee Jae-myung said South Korea’s domestic stock market is currently quite unstable. Because the market has experienced historically unprecedented sharp gains within such a short period of time, it needs time and a certain degree of volatility to stabilize.

At the meeting, Lee Jae-myung acknowledged that controversy over leveraged ETFs is heating up and asked the Korea Financial Supervisory Service and leaders of the Korea Exchange to address the issue as soon as possible, while also preparing follow-up response measures. The market is currently waiting for regulators to introduce more specific stabilization plans to reduce the impact of such high-risk products on the market.

It is understood that today the four major economic-sector leadership coordination mechanism of the South Korean government will hold a meeting to study and discuss response plans regarding the impact of single-stock leveraged ETFs on the stock market. This is the first time this agenda item has been formally brought into discussions under this mechanism. The mechanism is the highest-level economic coordination platform jointly involving the Ministry of Economy and Finance, the Financial Services Commission, the Bank of Korea, and the Financial Supervisory Service.

As of the time of writing, the South Korean KOSPI index is down 6.49%, and the Nikkei 225 index is down 2.84%.

Sun Fukun, deputy general manager of Huayuan Futures, told a reporter from Futures Daily that today’s plunge in the South Korean stock market is driven by the resonance of multiple negative factors. The Bank of Korea raised the benchmark interest rate by 25 basis points, directly weighing on high-valued technology stocks. At the same time, leveraged ETFs linked to semiconductor giants triggered forced liquidation amid the decline, creating a “death spiral” stampede effect. In addition, overnight U.S. stock storage-concept shares were hit across the board, further intensifying panic in the Asia-Pacific market.

Cathay Haitong Asset Management said earlier that the valuation of the CSI TMT Index has already risen to a historical high, and potential risks in the sector as a whole are accumulating. With the prior large rally in the AI computing power industrial chain, market expectations for growth in 2027 have gradually been fully priced in. Going forward, earnings growth will be extremely dependent on sufficient AI commercialization revenue being realized and continued financing support, while long-term uncertainty is continuously increasing. Therefore, in handling positions in the direction of computing power going forward, investors need to be more cautious—strictly controlling the risk-reward ratio—and not chasing higher prices blindly.