Korean AI stocks frequently experience sharp fluctuations, highlighting the power of excessive leverage expansion.

The AI-driven stock market boom in South Korea is turning into a cautionary tale: what happens when leverage becomes a more powerful market force than fundamentals. SK Hynix plunged a record 15% on Monday, forcing leveraged product managers linked to Korean chip makers to sell billions of dollars worth of stocks, evolving from an initial global reassessment of AI valuations into a market crash. This wave of selling helped push the Kospi index in South Korea down by 25% in just three weeks, exposing how margin loans, single-stock leverage exchange-traded funds, and concentrated index weights interact to amplify the market's two-way movements. Beyond Seoul, other regions around the world are increasingly paying attention to these dynamics. South Korea is at the center of the artificial intelligence hardware supply chain, with SK Hynix and Samsung Electronics accounting for more than half of the Kospi index weight. Now, SK Hynix can be traded in the U.S. market through American depositary receipts, and investors have expressed concerns that market sentiment may fluctuate between Wall Street and Asia around the clock, increasing the risk of Korean leverage-induced market volatility spreading globally. On Wednesday, this feedback loop played out again, with the Kospi index rising over 7% driven by the rebound in SK Hynix stock, which had previously risen by 27% in its ADR.