Seoul's AI hangover: how the hype around neural networks deprived South Korean pensioners and students of their savings

South Korea has experienced one of the worst financial collapses in its history. The KOSPI index, which reached a record 9,386 points in June 2026, tripling in a year on the wave of excitement around artificial intelligence, had collapsed by almost 40% by the end of July. The value of companies traded on the Seoul stock Exchange decreased by $2.18 trillion, which is comparable to the country's annual GDP. For the first time in history, the Korean stock market recorded two consecutive trading days with trading halted due to automatic fuses. Details can be found in the Izvestia article.

Bipolar disorder

"The Korean market behaves as if it has bipolar disorder — it rushes from panic to euphoria almost overnight. Today's movement looks like a hard reversal after an extremely overheated sell—off trend," said expert Chong Ying Yoon from Fibonacci Asset Management, CNBC notes. The journalists called the article posted on the TV channel's website: "Bipolar disorder of the South Korean market."

At the beginning of 2026, South Korea was experiencing a real boom. In six months, KOSPI soared by 116%, becoming the best market in the world. The growth was driven by shares of Samsung Electronics and SK Hynix, two companies that control the global HBM memory market, which is critical for AI chips. They account for almost 60% of the capitalization of the entire Korean market.

In May 2026, the Korean regulator approved the issue of exchange-traded funds with double leverage linked to shares of Samsung and SK Hynix. The products, conceived as a way to return to the country the capital of its residents who held money in foreign accounts, became a financial bomb.

Korean households have traditionally been actively involved in the stock market. This time, in the hope of capitalizing on the "gold rush," older people began withdrawing retirement savings, middle—aged people began mortgaging real estate, and young people began taking out consumer loans.

In two months, more than a dozen such products were released, and by June their total volume reached 76 trillion won (more than $50 billion). However, 50% of this volume was purchased using borrowed funds, which created an extremely dangerous structure.

Left without money

A significant part of this pyramid was based on foreign capital. But the situation changed when large foreign investors began to exit Korean assets en masse. Since the beginning of the year, the net outflow of foreign capital from South Korean stocks has reached a record 148.3 trillion won (about $1 billion). At the same time, at the peak, foreigners were actively selling, locking in profits.

When the market began to fall, a destructive feedback mechanism was activated: cheaper stocks forced ETFs to reduce positions to maintain a given level of leverage, which pushed prices down. This, in turn, caused margin calls, forced closing of positions and a new wave of sales.

According to Korea Investment & Securities, of the 880,000 broker's clients who bought Samsung shares, almost half are at a loss. Among the 408,000 investors who invested in SK Hynix, almost 70% are unprofitable.

According to Citigroup, retail investors in Korea lost 56.3 trillion won in the market, which is equivalent to $38.7 billion, and from 350 to 460 thousand accounts were completely closed by brokers with the loss of all invested funds.

This means that one in 30 Korean adults received a margin call or lost all their savings. At the same time, 62% of the victims are people aged 20 to 30 years.

Korean social networks are full of stories about how people lost a lot of money that they had been saving up for years. Most often, it is told how, at the peak of the hype, they sought to double their income, but eventually lost their investment.

With wreaths to the Parliament

As a result, dozens of funeral wreaths with protest slogans and promises to "take revenge on the elections" appeared at the parliament building in Seoul.

According to Asian media, the main reason for the collapse is not disappointment in artificial intelligence as such. Investors still believe in the AI boom. The problem is that the Korean market has become hostage to its own design: excessive concentration on two semiconductor giants — Samsung Electronics and SK Hynix — coupled with the massive use of leverage by retail investors.

The country's finance minister, Koo Yun Chol, had to publicly apologize for hastily launching such risky products on the market. And the chairman of the Financial Services Commission, Lee Ok-won, expressed regret in parliament that "the authorities failed to properly meet the expectations of the public." It was decided to introduce a package of emergency measures: a limit on the share of investments in individual ETFs in the investor's portfolio at 20%, raising the minimum threshold for margin trading from 10 to 30 million won, suspending the release of new products and limiting advertising. The possibility of introducing stricter security requirements and reducing the maximum leverage is also being considered.

In addition, the prospect of using the state stabilization fund of about 10 trillion won (about $7 billion) is being discussed.

Korean swing

On the last day of July, the situation improved slightly. The KOSPI benchmark soared by 14%, aiming for a record one-day gain, according to LSEG. SK Hynix has experienced a similar recovery, and Samsung Electronics has also shown impressive growth.

"The rebound followed a strong rally in American technology stocks, which was boosted by positive reports from Microsoft, Amazon and Meta, which confirmed that spending on artificial intelligence infrastructure remains at a high level," CNBC notes.

According to the channel's journalists, additional support was provided by the fact that the chairman of the SK group, Choi Tae-won, disclosed the purchase of shares of SK Hynix, thereby strengthening confidence in the second largest manufacturer of memory chips in the world.

"It was a month of wild swings, which clearly showed how closely the Korean stock market is tied to the global AI fever," CNBC emphasized.

However, experts agree that these measures can only have a temporary effect without solving the fundamental structural problems of the market.

"There are many more days like this ahead," warns Paul Gambles of MBMG Family Office Group. "Asset prices are completely disconnected from reality."

Meanwhile, the panic in the Korean market, which initially seemed to be a local problem, is beginning to worry global investors. Japan, the world's second—largest foreign lender, also faced falling government bonds and a weaker yen. Experts warn that in case of problems in the Japanese market, this could affect the EU and the United States.