Foreign investors pull billions from Taiwan as Korea’s deleveraging rout spreads

A cascade of forced liquidations in South Korea's overleveraged equity market has rippled across Asia, with foreign investors pulling $8.76 billion from Taiwan stocks in a single week as the region's two largest chip-dependent markets reel from a sharp reversal in AI-fueled gains.tradingqna+1

Korea's Leverage Unwind

The crisis traces back to late June, when South Korea's Kospi entered a vicious deleveraging spiral after Samsung Electronics and SK Hynix — which together grew to represent 52% of the index's total market capitalization — began selling off. The two chipmakers had become the focal point of a retail leverage frenzy after regulators approved single-stock 2x leveraged ETFs in late May, funneling trillions of won into concentrated bets on just two names.news.futunn+1

By mid-July, the damage was severe. More than 1.2 million leveraged accounts received margin calls, and between 320,000 and 360,000 were forcibly liquidated, according to South Korea's Financial Supervisory Service. On July 13, SK Hynix tumbled 15.37% in its largest single-day drop in 18 years, while the Kospi fell 8.95%. Reuters reported the index shed a quarter of its value from its late-June peak, entering a bear market — even as it remained up more than 60% for 2026.tradingqna+3

On July 16, the Financial Services Commission suspended new leveraged product listings, tripled minimum margin requirements, and mandated cash-only collateral, while the Bank of Korea raised interest rates by 25 basis points to 2.75%.reuters+1

Taiwan Feels the Tremor

The contagion struck Taiwan's Taiex with force on July 17, when the benchmark plunged 2,953.71 points — a record single-day point loss — closing down 6.47% at 42,671.27. Foreign investors sold NT$280 billion ($8.76 billion) over the week ending July 18, according to Taiwan exchange data. On Monday, the Taiex remained under pressure, falling an additional 0.52%.focustaiwan+3

Analysts note structural differences between the two markets. While Korea's rout was driven by a domestic leverage spiral in single-stock ETFs, Taiwan's selloff reflected broader profit-taking in AI-related equities after a global technology correction hammered the Philadelphia Semiconductor Index, which lost about 19% from its June peak, according to Bloomberg data cited by the Straits Times. TSMC Taiwan Semiconductor Manufacturing Company Limited ↘ 0.96%, which accounts for more than 40% of the Taiex, dragged the broader index lower.straitstimes+1

Regional Amplifier

The episode underscores how concentration risk in Asia's chip-heavy markets can transmit localized stress across borders. Reuters reported that foreign investors pulled a record $137 billion from Asian equities in the first half of 2026, with South Korea and Taiwan accounting for $70.8 billion and $29.6 billion respectively, as global funds trimmed their largest AI winners.reuters

"South Korean stocks may become an amplifier of sentiment on global technology stocks, given the high leveraged levels," said Jin Qianjing, an analyst at Shenwan Hongyuan Group, in comments reported by the South China Morning Post.scmp