"The Trend Is Now An Enemy": Kospi Slide Will Deepen As Momentum Flips Script

By David Savage, Bloomberg Markets Live reporter and strategist

The trend is now an enemy for Asian equities, especially those in South Korea, rather than the friend it was when they soared for much of the first half of 2026. 

Momentum has been the undisputed king for global factor investing in 2026, particularly for Asian markets. Those trades are fracturing, as reversals in South Korea and other tech-heavy sectors set off a deepening rotation in the region. Investors look to be taking some of the hefty profits that remain on the winners from 1H 2026 and pivoting toward other assets. That’s a theme also gaining traction for US chipmakers, with the SOX Index down more than ~18% from the highs of June.

June is looking like it was the peak for Asian equity momentum. That was when some key global index rebalancing provided a price insensitive buyer for recent AI-aligned winners. Aided by the SpaceX IPO, that kicked off a retail frenzy that reverberated across Asian markets. Now that rebalancing activity has passed, and recent additions to benchmarks such as SpaceX and Marvell Technology are seeing some mean reversion.

Foreign equity outflows were already making Asia more dependent on retail investors, who turned to leveraged ETFs and margin borrowing to amplify their bets. Overseas funds offloaded over $100 billion of South Korean stocks and more than $30 billion of Taiwanese shares YTD. That came even as those markets expanded to each surpass $5 trillion in June, overtaking the UK and Canada to join the top 8 exchanges by market cap.

Retail investors filled the void, especially in Korea. Unburdened by portfolio constraints that oblige active and passive funds to prune winning positions, retail accounts can hold onto winners for longer or even double down on them, reinforcing momentum as a dominant trend.

Now, one of the main products of the momentum trade — leveraged ETFs — is becoming a major negative for Asia, which had led the way as these assets expanded globally this year. So much so that South Korean authorities just said they will halt any new listings of single-stock ETFs and increase regulations on trading such products in an attempt to dampen market volatility.

Memory giant SK Hynix attracted one of the highest concentrations of single-stock leveraged ETF assets. In late May, Korea permitted the setting up of several domestically-listed single-stock leveraged ETFs, spurring a surge of flows into vehicles offering 2x exposure to the performance of SK Hynix and Samsung Electronics. At the peak, just three such SK Hynix ETFs held over $23 billion in assets, more than 2.5x the average daily turnover in the company’s locally listed shares.

These funds utilize swaps and options to maintain the 2x daily exposure they offer. As the underlying price moves, the fund’s leverage ratio drifts, triggering rebalancing to restore the target ratio. Thus, if the price of SK Hynix falls, then the fund (or its swap counterparty) needs to sell down exposure to bring the leverage ratio back to 2x.

The unwind of these vehicles has punished equity momentum in July and spurred a rotation in Asia toward former laggards.

The momentum factor had outperformed since the end of March as cross-asset volatility retreated, global growth remained resilient and oil prices dropped.

But now, renewed US-Iran fighting is pushing crude higher, breathing new life into the US dollar and reviving global rate hike fears. Asia’s equities are proving more vulnerable than most to tighter financial conditions and the resurfacing of geopolitical risks.

The reversal in trading dynamics, aided by the impact of leveraged retail investors, is sending volatility surging with the Kospi’s 30-day realized price swings rising to a new record. That signals the past month’s declines in the Kospi have the potential to extend, souring sentiment across Asia and even beyond to chipmakers globally.