Samsung Electronics (SSNLF), a South Korean producer of semiconductors, smartphones and electronic products, dropped 5.2% in Wednesday's Seoul trading after falling as much as 14% during a broader unwinding of leveraged AI-related investments. SK Hynix (HXSCL), another major South Korean memory manufacturer, closed 9.6% lower after record earnings missed expectations. Together, Samsung and SK Hynix represent more than half of the KOSPI's market value.
The KOSPI declined as much as 12.6%, triggering a 20-minute trading halt, before closing 6% lower. Reuters reported that retail investors had used borrowed money and single-stock leveraged exchange-traded funds to increase exposure to the country's semiconductor rally. As share prices declined, brokers forcibly closed some losing positions, adding to the selling. South Korea's finance minister and top financial regulator apologized for introducing the leveraged products without sufficient consideration.
The government plans additional restrictions that could limit an individual investor's exposure to single-stock leveraged ETFs to 20% of total investment assets. Samsung's 5.2% closing decline was substantially smaller than its 14% intraday loss, but the volatility demonstrates how forced deleveraging may temporarily overwhelm company-specific fundamentals. Investors may now assess whether regulatory measures stabilize the market and whether concerns about AI investment, memory supply and Chinese competition continue affecting Samsung after leveraged positions are reduced.