Goldman Sachs warns Korea-driven leverage is pushing global markets toward crisis

Goldman Sachs The Goldman Sachs Group, Inc. ↘ 6.36% has warned that leveraged demand from Asia — centered on South Korea — has pushed financing rates for S&P 500 total return futures to historic highs, with dealer balance sheets approaching saturation at an unusual mid-year peak.

In its latest weekly briefing, Goldman futures trading specialist Robert Quinn identified South Korea's "insatiable" appetite for leverage as the core driver of the abnormal surge in equity funding costs. The warning comes as Bloomberg reported that the leverage fueling the U.S. stock rally has become "an increasing source of unease," with financing costs reaching their highest levels since December 2024.finance.biggo+2

A Self-Reinforcing Feedback Loop

Quinn described the KOSPI trajectory as a "massive, self-reinforcing feedback loop" driven by leveraged ETFs, retail margin accounts, and total return swaps tied to memory stocks like SK Hynix and Samsung. The spread between S&P 500 and Russell 2000 funding rates suggests the leverage is concentrated in a narrow group of large-cap technology and semiconductor names rather than the broader market.thedarksideoftheboom.substack+1

The concerns are rooted in a tangible market structure problem. South Korea launched 16 single-stock leveraged ETFs tied to Samsung and SK Hynix in late May 2026, which have since ballooned from roughly $3 billion in initial assets to approximately $91 billion, with 92% held by retail investors. Combined exposure to margin trading and leveraged ETFs surged to 74.8 trillion won ($55 billion) by end of May, up 160.5% from a year earlier, according to Aju Press.finance.yahoo+1

Cracks Already Showing

The risks Goldman flagged are not hypothetical. On June 23, the KOSPI plunged nearly 10% from its record high, triggering a market-wide circuit breaker after Financial Supervisory Service Governor Lee Chan-jin publicly expressed regret about permitting the leveraged ETF launches. Reuters reported that overseas investors sold chipmakers following the regulatory caution.reuters+2

The Bank of Korea's Financial Stability Report for the first half of 2026 identified leveraged stock investing as one of the country's biggest financial stability risks, warning that "rising leverage, growing stock-market speculation and increasing financial imbalances could become significant sources of instability".ajupress

The Threshold Risk

Goldman cautioned that once funding spreads hit a critical threshold, a sudden liquidity squeeze could trigger systemic deleveraging. The risk, as one analyst framed it, is that "once a marginal counterparty can no longer fund the position, leveraged ETFs, options hedges, swaps and dealer balance sheets can all begin moving in the same direction".finance.biggo+1

The KOSPI had roughly doubled in 2026 before the June turmoil, driven by Korea's dominant semiconductor firms capitalizing on AI-related demand. Goldman itself had raised its 12-month KOSPI target to 12,000 earlier in June — a bullish call now shadowed by the bank's own leverage warnings.cnbc