Quick overview

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The world’s hottest stock market saw its largest-ever selloff on Wednesday as panic swept through South Korea’s trading floors due to worries about the Middle East conflict. After falling 7.2 percent the day before, the Kospi Index fell an additional 12 percent as heavyweights Samsung Electronics Co., SK Hynix Inc., and Hyundai Motor Company. fell.

Analysts were increasing their already optimistic forecasts for Korean stocks, and retail investors are flooding in with borrowed funds because of intense optimism surrounding artificial intelligence and the resulting demand for memory chips.

The war with Iran followed. Korea’s losses were made worse by a record accumulation of margin debt, or borrowed money for stock purchases, before the global stock market’s retreat due to worries that rising oil prices would fuel inflation.

The selloff serves as a sobering reminder of how quickly market enthusiasm can give way to fear. After offloading more than 12 trillion won of holdings over the previous two sessions, foreign investors ended up net purchasing 231 billion won ($157 million) worth of Kospi stocks.

The Kospi had risen nearly 50 percent at its peak this year due to insatiable demand for memory chips and optimism over corporate reforms. A crucial volatility indicator surged to its highest point since 2008.

The stock benchmark is still up 21% for the year despite the decline. There were indications that things were beginning to spiral out of control. Skeptics questioned the sustainability of a rally driven by a few stocks, while margin debt and investor deposits at brokerages reached all-time highs as sentiment became overheated.

Kim Dojoon, chief executive and investment officer at Seoul-b, stated, “There has been a lot of buying on credit, especially those heavyweight stocks, with investors putting down only 30 percent–40 percent in margin deposit.