Leverage-driven South Korean stock turmoil gives way to record Kospi rebound

Foreign investors' net selling of South Korean stocks slowed to 8.8 trillion won, or about $6.2 billion, in July from June's record 57.5 trillion won outflow, suggesting the intense liquidation that rattled the market may be easing. Even so, cumulative foreign net selling of KOSPI shares reached 160.1 trillion won, or about $112.6 billion, in the first seven months of the year, with roughly 93% of that tied to Samsung Electronics and SK Hynix. The KOSPI has fallen about 27% from its June peak of 9,114.55, and analysts say the earlier correction reduced rebalancing pressure in the market's largest semiconductor names. The Center for International Finance said foreign bond investment stayed positive in July at 800 billion won, while total foreign bond holdings rose to 353.2 trillion won at month-end. Analysts increasingly argue the market's deleveraging phase is nearing completion. Park Seung-min, senior researcher at the Center for International Finance, said shrinking assets under management in single-stock leveraged ETFs, slower inflows into those funds and easing margin-call pressure indicate the unwind is in its final stage. Combined net assets in leveraged ETFs linked to Samsung Electronics and SK Hynix fell to 5.2 trillion won at end-July from a June peak of 17.6 trillion won. The selling has been heavily concentrated in South Korea's dominant chip stocks. Foreign investors net sold 80.67 trillion won of Samsung Electronics and 67.75 trillion won of SK Hynix from January through July, after a first-half rally driven by expectations of expanding AI investment. Analysts say profit-taking, futures hedging and program trading amplified volatility, while single-stock leveraged ETFs tracking the two shares intensified supply-demand swings. Domestic retail investors, meanwhile, increased purchases of overseas assets in July. Net buying of foreign equities reached $4.58 billion, the fifth-largest monthly total on record, with SK Hynix's ADR ranking second among foreign stocks bought and the Direxion Daily Semiconductor Bull 3X Shares, or SOXL, taking the top spot. In overseas bonds, South Korean retail investors turned net buyers with $2.16 billion in purchases. Analysts say future foreign flows will depend largely on semiconductor earnings, AI-driven memory demand and whether confidence in the industry cycle improves.