South Korea's stock market risks surge as semiconductor bets spiral
Financial risks are growing in South Korea as speculative trading surges across its stock market. From leveraged products to record-high margin loans, investors are betting heavily on tech giants like Samsung Electronics and SK hynix. Now, warnings are emerging about the potential fallout if the semiconductor boom turns sour. The Korean government is set to permit high-multiple leveraged products linked to Samsung and SK hynix. This move comes as stock lending balances have ballooned to 180 trillion won, while outstanding margin loans now sit at around 36 trillion won. Trading in leveraged ETFs has also exploded, with turnover hitting 70 percent this year—far above typical levels.
Net short-selling has climbed to roughly 28 trillion won, signalling rising bets against the market. Meanwhile, the National Pension Service (NPS) has exceeded its domestic equity target by over 10 percentage points. If the NPS adjusts its holdings, a major selloff could follow, adding pressure to an already volatile market. The Buffett Indicator—a measure of market valuation—has surpassed 200 percent in Korea, matching levels seen in the US. This surge aligns with Warren Buffett’s recent warning that global markets have reached a 'gambling frenzy' peak. With so much capital tied to the semiconductor sector, a downturn could threaten the retirement savings of ordinary Koreans.
The combination of high leverage, speculative trading, and stretched valuations raises concerns about market stability. Should the semiconductor super-cycle weaken, the consequences could ripple through pensions and household finances. Regulators and investors are now watching closely for signs of a correction.
