Can geography make an otherwise apt metaphor a misnomer?
Maybe. If so, “Wild, Wild West” might not work for South Korean equities, the country being in the Far East.
But when used metaphorically, the definition of “Wild West” reads as follows:
A chaotic situation, industry, or environment that lacks clear rules, oversight, or regulatory control, leaving participants to fend for themselves.
That feels pretty apt vis-à-vis the Kospi, which on Tuesday traded down a harrowing 10%.
Let’s pause to state the obvious: Benchmark equity indexes in nearly-developed economies with thriving capital markets shouldn’t be notching double-digit, single-session moves with anything like regularity.
But those sorts of swings are becoming a fixture of the South Korean equity market, where SK Hynix and Samsung comprise more than 40% of market cap between them.
As a quick reminder, the Kospi’s YoY rally (i.e., the rolling 12-month gain on the South Korean benchmark) peaked at more than 225% early this month.
The figure above plots the YoY advance with the local implied vol index. I’m not sure I’ve seen anything quite like that, or at least not from a nominally respectable national benchmark in the post-dot-com era.
In the simplest terms: This is totally out of control, and local officials realize it.
On Monday, when SK Hynix leapfrogged Samsung to become South Korea’s most valuable company, the country’s top financial regulator said that in retrospect, he should’ve done everything in his power to stop the launch of leveraged products tied to single stocks.
Those products — leveraged ETFs tied to South Korea’s national semi champions — are playing a big role in exacerbating what would already be a laughably perilous situation.
This is, unequivocally, a bubble. Forget whether “the fundamentals are sound.” For the purposes of this particular discussion — i.e., South Korean equities — that doesn’t really matter.
The figure above says it all. Actually it doesn’t, but it says a lot. There’s a enormous amount of leverage in play. Margin debt’s more than doubled over the past 12 or so months, according to KOFIA.
So, bubble-buying with borrowed money. And lots of it. Those margin loans are dry kindling in a rout, and the EOD rebalance from the leveraged ETFs is gas on a (dumpster) fire.
I talked about this at some length earlier this month. As Nomura’s Charlie McElligott pointed out on June 8, the market cap for leveraged retail products tied to South Korean and Taiwanese equities was up sixfold in 2026.
There’s the chart again. Leveraged ETFs referencing SK Hynix and Samsung, like all such products, can be potent vol accelerants given the structural imperative of buying strength and selling weakness.
You also have to account for options, which is to say you need to consider what’s on the other side of bought calls in the semi names. I alluded to that yesterday while documenting SK Hynix’s “flip” of Samsung.
“I think leveraged ETFs are increasingly needing to participate in options for leverage, as their traditional financing lines max out, and [that] only increases the instability risk,” McElligott said, a mere 18 hours ago.
That, in turn, exposes us to the “collapsing under the weight of the delta” dynamic, he added, describing the very same “profit-taking-turned-waterfall” avalanche — wherein the negative gamma effect from options knocks into the leveraged ETF rebal — behind the June 5 selloff on Wall Street.
When just two names comprise a huge share of the local equity market — again, nearly half on a cap-weighted basis in South Korea — outsized swings translate directly into huge index moves while US markets are closed. On Tuesday, that index move on the Kospi was 10%.
As Charlie wrote on June 8, “an ugly close out of Asia [can] turn sloppy for [America’s] own negative gamma products” as traders wake up to “slippery futures” with implications for the AI-tied names that dominate the indexes and account for a ton of leverage across various channels in America, just like they do in South Korea.
