The South Korean government on Tuesday raised its 2026 economic growth forecast to 3 percent from 2 percent, citing a 40 percent surge in exports driven by the global AI boom and insatiable demand for high-bandwidth memory chips. Finance minister Koo Yun-cheol told a cabinet meeting that the strong semiconductor market was a “boon for economic indicators,” and the finance ministry projected a record current-account surplus of $290 billion. The government plans to channel windfall tax revenues from Samsung Electronics and SK hynix into a “future response fund” for strategic investments in future industries, youth, and regional development.

That same AI-fuelled optimism, however, has unravelled in financial markets. The benchmark KOSPI index has plunged into a bear market, shedding 25 percent from its June record high above 9,100 points to trade below 7,000. The sell-off has been amplified by an unprecedented build-up of retail margin debt, which reached a record 38 trillion won ($248 billion) as individual investors borrowed heavily to chase gains in Samsung and SK hynix—the two stocks that now account for over half of the index’s weighting.

As foreign investors withdrew a record $110 billion this year to rebalance portfolios, domestic retail buyers became the marginal force. When the global semiconductor rally stalled, the concentrated leverage triggered a cascade of margin calls. According to industry data, between 320,000 and 360,000 leveraged accounts were forcibly liquidated, with some left owing money to brokers. The forced selling fed on itself, dragging the KOSPI through seven circuit breakers this year and crushing leveraged ETFs—a three-times leveraged KOSPI fund has tumbled 65 percent from its peak. Analysts in Singapore describe the episode as a reminder that chip-stock exposure “can be a volatile game.”

The Bank of Korea governor has signalled a possible rate hike at the 16 July meeting to address inflation, which the government revised up to 2.6 percent, above the central bank’s target. The Financial Supervisory Service is monitoring single-stock leveraged products and may investigate excessive marketing. With brokerages tightening margin rules, market participants are watching whether the de-leveraging cycle stabilises or triggers further forced selling, making the central bank’s next move a critical juncture.