Explaining stock market movements is always a little bit of a fool’s errand; no one really understands why stocks boom or crash on a given day or in a given week.
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stocks → explain → week
Over the long run, the stock market displays lots of “excess volatility” — prices move up and down much more than is warranted by changes in earnings or other measures of fundamental value.
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prices → display → value
There are plenty of theories about why those swings happen, but it’s very hard to know which of those — if any — is in operation at any given time.
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it → be → time
And so although every big stock market movement is followed by lots of articles claiming to know why, you should take them all — including this one — with several grains of salt.
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you → follow → salt
Anyway, having said all that…
The Korean stock market has been crashing for weeks now.
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market → say → weeks
Around March, Korean stocks went on an epic tear; the KOSPI index rose from around 5,000 to over 9,000.
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index → go → 9,000
Then, just over a month ago, it all went into reverse, with the index falling back to around 5,500:
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index → go → 5,500
There are probably two stories regarding why this happened — one about fundamentals, and another about finance.
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this → be → finance
There’s almost always some kind of connection to fundamentals — some story about how we’re in a new economy, followed by doubts about whether that story is really true, and so on.
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story → ’ → doubts
But the big market movements are almost always accelerated by purely financial factors — “noise traders” armed with piles of excess cash, opportunistic speculators looking to ride the wave of sentiment, and so on.1
For Korea, the fundamental story was about memory stocks.
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story → accelerate → stocks
Korean companies like SK Hynix and Samsung make a lot of the world’s computer memory.
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companies → make → memory
Under normal circumstances, computer memory isn’t a great business to be in — the technology is fairly commoditized, the industry is brutally competitive, it takes a LOT of capital to build the factories, and it’s very risky to make long-term bets on the evolution of memory technology.
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it → commoditize → technology
And so the AI boom kicked off the mother of all memory booms.
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boom → kick → booms
Only a few companies had the scale to meet a large amount of this demand explosion, and the two biggest of these were in South Korea.
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biggest → have → Korea
SK Hynix’s operating profit went from under $10 billion in the first quarter of 2025 to over $35 billion in the first quarter of 2026:
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profit → go → 2026
Hynix, which specializes in memory, briefly had a higher market capitalization than Samsung, simply because the memory boom is so huge.
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boom → specialize → Samsung
Korea’s exports rose over 70% in just one year; in fact, the country’s whole national GDP growth rate increased by a noticeable amount over the past two quarters, just because of this one product:
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rate → rise → product
That’s a pretty strong fundamental story about why South Korean stocks should be worth a lot more.
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stocks → ’ → ?
So it’s no surprise that the Korean stock market boomed as soon as people realized in early 2026 that AI technology is going to be extremely valuable.
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technology → ’ → 2026
Here’s a thread about just how epic the runup in these companies’ stock prices was:
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runup → ’ → prices
This is where the financial story rears its head, though.
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story → rear → head
A bunch of traders saw this enormous price rise and decided to buy into it.
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bunch → see → it
You’d think a lot of these would be foreign, but international investors mostly avoided the boom (except for a few who bet big on Korean memory stocks).
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who → think → stocks
These investors probably didn’t understand the fundamental story about AI and data centers and so on.
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investors → understand → AI
Instead, they probably had extrapolative expectations — they see the price go up and up, and they figure stocks are just a “goer upper”.
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stocks → have → expectations
As more and more buy in and the stock goes up more and more, the perception of a structural upward trend is only reinforced, causing yet more people to buy in.
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people → buy → trend
This isn’t the only explanation for coordinated “noise trader” buying frenzies, but it’s probably the most likely.
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it → ’ → frenzies
Normal people don’t have a lot of cash sitting around.
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people → have → cash
But earlier this year, regular Korean people got the opportunity to effectively borrow lots of money to invest it in stocks, via the introduction of leveraged single-stock ETFs.
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people → get → ETFs
When you buy a share in a leveraged single-stock ETF in SK Hynix, it’s like borrowing money to buy SK Hynix stock.
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it → buy → stock
A whole lot of Koreans used leveraged ETFs and other borrowing methods to borrow huge amounts of money and buy lots and lots of Korean stocks — especially the memory company stocks that were driving everything.
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that → use → everything
There were some people selling — notably, foreign investors “taking profits” and getting out.
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investors → be → profits
But the noise traders overwhelmed all the selling pressure, and sent stock prices soaring.
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traders → overwhelm → prices
Then something happened last month — either something fundamental or something financial.
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something → happen → ?
Hynix and Samsung are doing fine in terms of earnings growth, but it’s possible that something suddenly gave traders reason to doubt the overall story about the AI boom sending these companies’ profits to the moon.
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boom → do → moon
The other possibility is that Korea simply ran out of hotheaded day traders willing to borrow more and more in order to bet on stocks, and the influx of cash naturally came to a halt.
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influx → run → halt
Whichever it was, at that point the price faltered and began to fall.
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price → falter → point
All that borrowed money accelerated the fall on the way down.
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money → borrow → way
When prices fall, leveraged ETFs have to sell some of what they hold.2 When
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they → fall → what
do this at the same time, it pushes prices down, forcing others to sell.
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it → do → others
…and 53 more, not listed.
The Aporia
