The negative pressure felt this morning in U.S. futures is not an isolated event, and it does not begin on Wall Street. It is the direct product of a drama that has been running for over three weeks in South Korea
- and this morning it reached its peak: the KOSPI plunged 10.84%, fell below 6,000 points, and the exchange's circuit breaker fired for the eighth time this year.
What Actually Happened Today
The Korean index closed down 10.84% at 6,023.63 points, after falling more than 11% during the session and breaking below the psychological 6,000-point level. Its cumulative decline in July alone is approaching 30%.
At one point in the morning the Korea Exchange triggered a circuit breaker and halted trading for 20 minutes. For those unfamiliar with the term: this is an automatic mechanism that stops trading when the index falls beyond a defined threshold, to let the market breathe and prevent cascading panic. This is the eighth time this year that mechanism has been triggered in Korea - a figure that in itself tells the scale of the turmoil.
At the center of the storm: the chips.
| Stock | Decline today |
|---|---|
| Samsung Electronics | over 13% |
| SK Hynix | over 14% |
| Kioxia | over 18% |
| KOSDAQ index (tech) | 6.54% |
Why a Correction Became a Rout: The Leverage
And here sits the heart of the story, and it is not the sector but the structure.
An extreme level of leverage had built up in the Korean market in recent months. Margin loan balances crossed the 60 trillion won mark in May - an all-time record, and 2x leveraged ETF products sold out immediately upon listing. Margin balances on KOSPI stocks alone reached a record 38.63 trillion won at the end of June.
Let us explain the mechanism, because without it this day cannot be understood:
Margin is credit a broker extends to an investor to buy shares beyond the money they have. When the stock falls, the value of the collateral falls - and at a certain point the broker sends a margin call: a demand to deposit additional money immediately. An investor who does not deposit in time moves to forced liquidation - the broker sells their portfolio into the market, at any price.
And here the snowball forms: the forced sales flood the market with supply, the price falls further, that triggers margin calls at additional investors, whose portfolios are also sold by force - and so on. The decline feeds itself, regardless of what the company is worth.
And that is exactly what happened in Korea, on an enormous scale:
- Over 1.2 million margin accounts received margin calls - per reports, one in every 30 adults in the country
- About 360,000 accounts were forcibly liquidated by their brokers
- The forced-liquidation rate jumped from an average of 2.1% over the preceding six months to over 10%
- In the first ten days of July alone, forced liquidations totaled about 425.8 billion won
And one detail explains why the chips took the hardest hit: per reports, Samsung and SK Hynix alone account for about one-third of total margin credit in the market. When the leverage is concentrated in two stocks, and both fall together, the liquidity cascade is inevitable.
The difference between a decline and a rout
A correction is when investors decide to sell. A leverage rout is when investors are forced to sell. In Korea, about 360,000 portfolios were sold by the brokers - not because their owners changed their minds about Samsung, but because the collateral was insufficient. That is why the decline looks irrational: the supply that flooded the market did not reflect a change in valuation, but mechanical compulsion.
Why It Is Felt on Wall Street
The obvious question is why an event in Seoul knocks down futures in New York. The answer rests on two channels.
The first channel - liquidity. International institutions manage global portfolios. When such an institution absorbs a heavy loss on an Asian position and is required to post collateral, it sells what is liquid and easy to sell - and that is often precisely the American assets. This is a familiar effect: in sharp deleveraging waves, people sell not what is worst but what is most tradable. So a liquidity crisis in one region generates selling pressure in another, even when the fundamentals there have not changed.
The second channel - the sector read. Samsung, SK Hynix and Kioxia are the heart of the global memory industry. When they plunge by double digits, the American investor immediately asks: is this a local leverage story, or is the market pricing a slowdown in chip demand? That question touches directly on the entire AI chain we cover - and so it translates immediately into pressure on U.S. chip stocks.
And What Should Be Said for Balance
And here it is worth pausing, because this story invites exactly the kind of panic worth avoiding.
First, the mechanism there is local. A leverage level above 60 trillion won, with one in every 30 adults facing a margin call, is not the situation in the U.S. This is a specific market structure that built up in Korea over months - not the global market's assessment of what chips are worth.
Second, a forced sale is not a voluntary sale. The supply that flooded Seoul stemmed from collateral demands, not from an investment decision. Such events tend to be sharp and relatively short, because at some point the leveraged positions simply run out - and then the forced supply stops.
And third, and most importantly: just yesterday we saw three reports pointing the opposite way. Celestica raised its annual outlook by $1.5 billion on hyperscaler orders, Cadence reported a record chip-design backlog, and Rambus - which sits precisely in the memory market collapsing in Seoul today - beat its guidance and raised the outlook for next quarter. The demand reported in the earnings is not what was sold by force in Korea today.
My Angle
A personal opinion of Ilan Abramov - not advice, not a recommendation
Today is a reminder of a lesson I repeat in every turbulent market: one must separate what the market is saying from what the market is being forced to do.
When I see an index down 10% and a circuit breaker firing, my first question is not "what changed in the businesses" but "who has to sell right now." In Korea the answer is entirely clear: 360,000 portfolios sold by the brokers, not by their owners. That is not valuation - it is mechanics.
And that leads me to a point that touches the Israeli reader directly. The Korean story is the sharpest demonstration I have seen this year of the danger in leverage. Those investors did not necessarily err in picking the stock - Samsung and SK Hynix are real companies with real businesses. They erred in position size. Whoever bought without leverage saw a painful decline; whoever bought leveraged lost the entire portfolio, with no ability to wait for a recovery. Leverage does not only magnify returns - it strips you of the right to be wrong about timing.
And what I am watching from here: whether the pressure stays in Korea or spreads to the fundamentals. If in the coming days we keep seeing the giants' reports showing demand - as we did yesterday - this is a liquidity event, painful but local. If we start seeing orders postponed and outlooks lowered, that is an entirely different story. This quarter, especially with Microsoft and Meta tomorrow, will give the answer.
Summary
What happened in Seoul today is a large-scale liquidity event: an index down 10.84%, breaking below 6,000 points, and a circuit breaker firing for the eighth time this year. Memory stocks - Samsung, SK Hynix and Kioxia - absorbed double-digit declines. But the root is not valuation but leverage: over 1.2 million accounts in margin call, about 360,000 forced liquidations, and a liquidation rate that jumped from 2.1% to over 10%.
The pressure felt in American futures stems from two channels - selling liquid assets to cover losses in Asia, and fear that the plunge in chips reflects a slowdown in demand. The first channel is mechanical and will end when the leveraged positions run out. The second is the real question - and the answer will come from the earnings, not from the screens.
Sources: Korea Exchange data and reporting from TradingKey, Korea JoongAng Daily, EBC and Sunday Guardian on the KOSPI close at 6,023.63 (-10.84%), the circuit-breaker trigger and the declines at Samsung, SK Hynix, Kioxia and the KOSDAQ; reporting on margin loan balances, the number of margin calls and forced liquidations (Bloomingbit, KuCoin, BigGo Finance, Eastern Herald, 36Kr). Data accurate as of the time of writing and updating during the trading day. Nothing herein constitutes a forecast, recommendation or advice - see the full disclaimer at the bottom of the page.