The volatile state of South Korean stocks is reminiscent for some investors of China’s rapid boom-to-bust cycle a decade ago, analysts say, when leveraged trading fuelled a meltdown that eventually wiped US$5 trillion from the market within months.
The South Korean stock market’s frantic artificial intelligence trade has many similarities to China’s markets in 2015, when record-high outstanding margin debts and a retail frenzy led to government intervention that eventually deflated the stock bubble.
“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. “The market may face a double whammy of high leverage and an exodus of foreign capital in the short term.”
