Debt-fueled bets are turbocharging the South Korean stock market as Kospi jumps 8%

By Jules Rimmer

Samsung Electronics rallies 8% and SK Hynix 11% in a single session

The South Korean stock market registered a massive uptick on Thursday as Samsung averted a strike and Nvidia's earnings confirmed unrelenting demand for semiconductor chips.

News that Samsung Electronics has managed to avert a strike by labor unions sparked another speculative frenzy on the South Korean stock market on Thursday.

The Kospi Composite Index KR:180721 rallied more than 8% to yet another all-time high. That's as the level of margin debt, the manner in which many retail investors are participating in the jackpot, is starting to reach alarming levels.

The sharp spike in the world's sixth-largest equity market by capitalization was amplified by Thursday's earnings report from Nvidia (NVDA).

Nvidia's chief executive officer, Jensen Huang, set out an extremely bullish investment case after the announcement of robust quarterly results. He boasted that "demand has gone parabolic" for the buildout of AI infrastructure, specifically highlighting the tight supply of the memory chips that Korea's two largest companies, Samsung (KR:005930) and SK Hynix (KR:000660), manufacture.

The combination of the positive news on the industrial dispute and the relentless demand for high-end semiconductor chips led to an 8% rally in Samsung, the second-biggest company in Asia behind Taiwan Semiconductor Manufacturing Co. (TSM), while SK Hynix, third on that list, rose 11%. Together, those two stocks account for almost half of the value of South Korea's equity benchmark, giving them an outsized influence on its performance.

Huang's comments about the growth potential of physical AI and robotics sparked a 29% one-session jump in shares of LG Electronics (KR:066570), which has pivoted toward that sector in recent years.

However, the near-200% gain in the Kospi index over the last 12 months has attracted a large number of speculative investors. Many are new to stock-market trading, with a reported record number of trading accounts being opened by nonprofessional investors, including, reportedly, brokerage accounts for children and even babies and for senior citizens. Korea is widely reported to now have 105 million active trading accounts among a population of just 51 million.

Not only are Koreans trading like crazy, but they appear, to the consternation of some analysts, to be trading like crazy on borrowed money. According to the Korean Financial Investment Association, margin loans have risen to around $26 billion as of Thursday. That's way more than doubled since the start of 2025, according to an X post from the Kobeissi Letter. In 2020, for instance, only $5 billion of margin debt was posted on the Kospi.

Margin borrowing to buy Korean stocks has risen alarmingly in recent months as retail investors jump on the bandwagon.

Borrowed money magnifies returns when share prices are rising as smaller investors are able to gain far more exposure to the upside, but when share prices fall that leverage exacerbates losses. This partly explains the volatility of the Korean market that has now recorded nine separate days of more than 5% gains in 2026 alone.

The flashing warning signs have been highlighted in several quarters. Société Générale's Asian-equity-strategy team, led by Rajat Argawal, published a note Thursday in which it confirmed that, even as foreigners were generally exiting, domestic retail investors have taken up the slack with inflows of $36 billion since the Iran crisis began.

Agarwal observed that with just two stocks constituting almost half of the index, "concentration risks are likely to persist, keeping volatility elevated in the near term," while "indicators such as margin financing and investor deposits with brokers also point to a rising use of leverage among retail participants."

The suggestion by a Korean member of parliament last week of a windfall tax on chip manufacturers was enough to prompt a 5% drop in the Kospi in a matter of hours.

Wary of the market crashes that invariably follow a speculative bubble, international investors have been unloading exposure to Korea, and data from Goldman Sachs published last week demonstrated that, so far in 2026, foreigners have sold around $55 billion in Korea shares.

Internationals have been steadily reducing Korean exposure all year.

The rampant speculation has been fueled by an army of commentators and market influencers online. Just one example highlighted in the local press in Korea cited an investor taking a position of 2.3 billion Korean won (USDKRW) (about $1.7 million) in SK Hynix, of which 1.7 billion won was borrowed.

Local media also reported that Koreans are surrendering their life-insurance policies to buy shares, with policy surrenders said to have surged 16% in the last quarter among the top three insurers. Meanwhile the aversion to more conservative fixed-income investments has seen Korean local currency debt decline BX:AMBMKKR-01Y in 2026 so far, and deposits with savings and commercial banks have reportedly fallen sharply.

It must be pointed out, that while the market is frothy with evidence of retail gambling, there is no lack of fundamental value in the Korean market, and its rise has been underpinned by huge earnings upgrades, especially in tech. Goldman Sachs in March raised its index target to 9,000.

In Thursday premarket trading in the U.S. the iShares MSCI South Korea exchange-traded fund EWY was 3.4% higher at around $186.

-Jules Rimmer

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