Taiwan, Japan, South Korea stocks plunge as deleveraging pressures mount

Stock markets across Taiwan, Japan, and South Korea suffered sharp declines on Tuesday, with Taiwan's benchmark index plummeting over a thousand points. The sell-off intensified around 11 a.m. local time, coinciding with a significant downturn in the South Korean market, which fell by 8.64%.

Financial commentator Hsieh Chin-ho, chairman of the}, Financial Times Group, stated that the current market correction is driven by intense deleveraging pressures rather than an AI bubble. He identified South Korea as the primary victim of this trend, with other Asian markets following suit.

South Korea's stock market had previously experienced a remarkable surge, with its index rising 122% this year and 56.4% last year. This growth was largely propelled by the soaring prices of semiconductor stocks like Hynix and Samsung. Hynix shares, for instance, jumped from 73,100 to 2,987,000 Korean won, a nearly 40-fold increase, while Samsung's stock rose 650%.

Fueled by this rally, South Korean investors heavily utilized leverage, particularly through two-times leveraged ETFs issued in Hong Kong and later approved domestically. These instruments, which require additional investment as prices rise and selling as they fall, became increasingly volatile. Hsieh warned of impending trouble, noting the extreme use of leverage by investors who "put all their assets on the line," likening the situation to a "stick connecting a knife", a Taiwanese idiom for a precarious and ultimately disastrous situation.