Why did the Kospi fall another 8% on the day JPMorgan said the forced selling was nearly done?

Most of the Korean stock that was bought with borrowed money has already been sold, according to a note out this week. JPMorgan wrote on July 29 that leveraged ETFs in the Korean market have largely been liquidated and estimated that hedge fund deleveraging is about 90% complete.

Samsung and SK Hynix may rebound as South Korea's leveraged ETF liquidation wave nears its end, JPMorgan says (TradingKey, 2026-07-29)

출처: tradingkey.com

The English write-up of that note carries the direction but not the 90% figure. What it does say is that the liquidation wave is nearing its end, and that this correction came out of capital flows rather than anything breaking inside the businesses. On the same day the Kospi fell 8.2% to 5,531.56 during Seoul trading, with circuit breakers firing for a second straight session. The selling that had to happen was nearly finished, and the drop got bigger anyway.

What deleveraging is, and why it hits this hard

Unwinding a position bought with borrowed money is called deleveraging. When prices fall, the borrower runs short of collateral and has to sell, and that selling pushes prices lower, which forces the next sale. This kind of selling does not look at whether a company is good or bad. The size of the position decides what gets sold, so strong results get dumped alongside weak ones. That is why counting how much of this supply is left has become the most common piece of arithmetic in the Korean market right now.

The pile really did shrink

The July 21 note counted it this way. Money sitting in these leveraged ETFs had fallen from $50 billion at the end of June to $26 billion, and $18 billion was the level JPMorgan considered normal. Three quarters of that distance had been covered, and eight days later the figure was 90%.

So why did it fall further

Forced liquidation was not the only seller that day. SK Hynix dropped as much as 15% in a session, and roughly a quarter of its market value went in two days. This is the company that had reported a sixfold jump in quarterly profit the day before. In the same release it said capital spending would rise to at least $31 billion.

Korean stocks see record wave of trading halts on chip selloff (Bloomberg via Yahoo Finance, 2026-07-29)

출처: finance.yahoo.com

That report counts nine of the fifteen circuit breakers since 2000 as having happened this year. It also quotes a market voice giving the reason for selling as the capex line, not the profit line. The news that the company earned more and the news that it will spend more landed on the same day, and the market looked at the second one.

Same completion percentage, and one side sees the end of the selling while the other sees a change in who is doing it.

One pile that has not been counted

From July 31, buying a single-stock leveraged ETF in Korea requires 30 million won of cash sitting in the account. Money from selling shares counts only two days later, once settlement completes. Averaging down as prices fall gets much harder, and whatever selling that rule produces is not inside the 90% JPMorgan counted.

So what settles it

The question comes down to one thing. Is the selling now the tail of the liquidation, or a new wave based on a view of earnings. If the declines stop after the July 31 rule takes effect, JPMorgan's reading holds and leverage was the last thing shaking this market. If they continue after that, the seller has already changed, and counting completion percentages stops meaning anything. Selling created by borrowed money has an end. Once the debt is repaid there is nothing left to sell. Selling created by a judgment has no such end.