South Korea's benchmark Kospi index experienced a significant downturn this week, slumping more than 11% on Wednesday, July 29, 2026. This recent decline pushes the index down by a staggering 43% from its June 2026 peak of 9,386 points to 5,311.77, officially entering bear market territory.
Leveraged Bets, Not Earnings, Fueled the Plunge
Deepak Shenoy, CEO of Capitalmind Mutual Fund, stated on Thursday that the severe market correction reflects the inherent dangers of leveraged momentum investing. He warned that debt-fueled speculation, rather than underlying weak corporate earnings, poses the greatest risk when markets reverse course.
Despite major chipmakers like SK Hynix and Samsung Electronics reporting robust earnings, their shares came under intense selling pressure. SK Hynix saw a more than 14% drop, while Samsung Electronics fell 10%. These two companies alone account for nearly half of the Kospi's weighting and contributed significantly to its earlier gains this year.
'Pure Gambling': The Role of 3x Leveraged Single-Stock ETFs
Shenoy criticized the widespread use of highly leveraged products among retail investors, particularly 3x leveraged single-stock ETFs. He described these instruments as "the most clinically insane thing to do, just pure gambling," especially when investors borrow money to acquire them. He noted that much of the correction stemmed from individuals in South Korea taking on significant leverage to participate in the market's previous upward trajectory.
"3x levered single stock ETFs has to be the most clinically insane thing to do, just pure gambling. And then people borrowed money to buy these ETFs!"
Deepak Shenoy, Capitalmind CEO
For investors who engage in momentum trading, Shenoy emphasized the critical importance of knowing when to exit. "If you play momentum, you have to get out when the momentum's lost. You will still make out very decently if you don't go bonkers at the top," he advised.
India's Regulatory Environment and AI Investment Risks
Drawing a comparison, Shenoy highlighted that Indian regulators have not permitted similar highly leveraged products, though margin trade funding (MTF) is increasing. He believes India has not yet seen a momentum-driven systemic risk of this magnitude in its stock market.
Shenoy also cautioned that investments in artificial intelligence (AI) companies, particularly those financed through leverage, could face significant pressure. If AI spending slows or increased competition drives down prices, these leveraged positions could be severely impacted. "The leverage taken by AI players will be a big hit if there is an actual slowdown in AI scale because competitors can bring far lower prices. The game is on," he concluded.