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Korean Stock Crash Spills Over to Wall Street: “AI Stock God” Heavy Position in SK Hynix Lost 67% in One Month, SEC Intervenes to Investigate Leveraged Trading

Korean Stock Crash Spills Over to Wall Street: “AI Stock God” Heavy Position in SK Hynix Lost 67% in One Month, SEC Intervenes to Investigate Leveraged Trading

华尔街见闻华尔街见闻2026/08/26 06:01
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By:华尔街见闻

The U.S. hedge fund Situational Awareness suffered a heavy loss of 67% in July due to its large positions in SK Hynix, forcing it to liquidate assets to repay loans. The SEC has launched an investigation into its leveraged trades. Meanwhile, U.S. retail investors, using newly opened direct Korean stock channels and popular DRAM ETFs, became the cross-border risk bearers in this round of Korean stock market crash, which wiped out about $2.5 trillion in market value.

The Korean stock market has experienced the most dramatic crash amid the global AI frenzy, with its shockwaves crossing the Pacific and directly impacting American investors—a US AI hedge fund heavily invested in SK Hynix recorded a loss of about 67% in July and was forced to liquidate assets to pay back loans. Meanwhile, US retail investors who poured into Korean chip stocks through the DRAM ETF have become the receivers of this wave of cross-border speculative risk.

The institution most affected by this spillover is the hedge fund Situational Awareness, dubbed the "AI Stock God." According to The Wall Street Journal, the fund held a significant amount of SK Hynix's Korean-listed shares, and its bet on Korean chip stocks was a key reason for the roughly 67% loss in July. The fund has since liquidated most of its public equity portfolio to repay debts.

The cross-border path for US retail investors is equally clear. In May this year, Interactive Brokers became the first major US brokerage to offer direct trading of Korean stocks. Around the same time, asset management company Roundhill Investments launched the DRAM ETF, focused on memory chip makers. Samsung Electronics and SK Hynix together account for nearly half of the fund's market value, and the ETF became one of the most successful launches in US history in terms of new capital attracted within weeks.

Domestically in Korea, retail investors (the "ants") account for 60% to 70% of daily Kospi trading volume and suffered heavy losses as the market plunged about 40% over six weeks, erasing around $2.5 trillion in market value. This boom, fueled by faith in AI chips and leverage tools, provides a clear example of cross-border speculative risk.

Hedge Funds Liquidate Positions to Repay Loans; AI Chip Concentration Risk Exposed

Situational Awareness was established in 2024 and is managed by former OpenAI researcher Leopold Aschenbrenner. The fund made a name for itself with outsized returns by betting aggressively on AI-related assets, utilizing high exposure and leverage. However, July's broad AI sector selloff swiftly unraveled its leveraged positions. The fund reported to investors that its portfolio value fell by 67% in July alone.

Aschenbrenner wrote in a letter to investors: "We came closer to permanent capital loss than we are comfortable with." He also noted that the fund ultimately found a solution, but it was never intended to encounter this situation.

According to Reuters, citing a source familiar with the matter, the SEC is investigating the timing of transactions that triggered margin calls, as well as the fund's communications with major lenders—including Goldman Sachs, JPMorgan, Citigroup, and Bank of America—regarding leverage usage. Situational Awareness stated in a statement that "we anticipate that regulators will closely scrutinize any fund with high visibility, exceptional returns, or especially severe drawdowns," and added that the company "is a strictly regulated institution and will fully cooperate with any regulatory requirements." The SEC and the aforementioned banks all declined to comment.

Retail Investors Use DRAM ETF; Historic Success Turns into Risk Exposure

The rally in Korean chip stocks was originally out of reach for most American retail investors—at the onset of this memory chip supercycle, neither Samsung Electronics nor SK Hynix was listed on US exchanges, and domestic brokerage accounts could not directly purchase them.

Two new tools filled this gap. In May, Interactive Brokers became the first major brokerage to offer US customers direct access to Korean stocks. Almost at the same time, relatively unknown asset manager Roundhill Investments launched the DRAM ETF, investing in memory chip manufacturers, with Samsung and SK Hynix making up nearly half the fund's net value.

Within weeks of its launch, the DRAM ETF set a record as one of the most successful ETF launches in US history in terms of attracting new investor capital, even drawing attention from industry giants such as BlackRock and Vanguard. Roundhill CEO Dave Mazza stated in an interview that the ETF mainly reaches individual investors through social media, rather than traditional financial advisor networks.

However, as the Korean stock market crashed, this cross-border speculative channel quickly became a conduit for transmitting losses, directly exposing US retail investors chasing gains to the wild volatility of the Korean market.

Local "Ants" Suffer Heavy Losses; Leveraged ETFs Amplify Volatility

In May, Korea launched its first batch of single-stock leveraged ETFs, allowing retail investors to double down on bets on Samsung Electronics and SK Hynix. When the market reversed, retail investors, who make up 60% to 70% of daily Kospi trading volume, took heavy losses. Some investors even sent funeral wreaths to the National Assembly, with banners reading "Ants are being slaughtered—National Assembly, please respond."

Regulators subsequently suspended approvals of new single-stock leveraged products, doubled the mandatory cash margin to about $21,000, and expanded compulsory online training for individual investors. The Kospi has rebounded about 20% from its lows; the Kospi 200 Volatility Index has fallen from 86.18 on July 30 to 56.76 as of Monday.

Jung Eui-jeong, the leader of the Korea Shareholders Alliance representing about 14 million individual Korean investors, called on regulators to delist single-stock leveraged ETFs and to develop relief plans for affected retail investors. "To return to a normal investment environment, the government cannot stand by," he said. "Major surgery is needed."

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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华尔街见闻2026/08/26 06:31