iShares MSCI South Korea ETF (EWY) plummeted 5.01% during intraday trading on Wednesday, as the underlying South Korean equity market suffered a severe sell-off driven by disappointing earnings from memory chip giant SK Hynix and forced deleveraging across leveraged products.

SK Hynix reported second-quarter revenue of 79.32 trillion won, missing market expectations of 84 trillion won, while operating profit also fell short of consensus. The results fueled skepticism about the sustainability of AI infrastructure spending, sending SK Hynix shares down over 17% and Samsung Electronics down over 10%. The two stocks together account for more than half of the KOSPI index weighting, and the benchmark KOSPI plunged over 12% intraday, triggering market-wide circuit breakers for the second consecutive trading session. Retail investors net sold 1.9 trillion won worth of KOSPI-listed stocks, sharply reversing their prior pattern of buying on dips.

The sell-off was amplified by the unwinding of highly leveraged positions in single-stock leveraged ETFs, which had concentrated retail investor bets on the two memory chip leaders. The scale of margin calls and forced liquidations prompted the South Korean government to announce new rules to curb retail participation in leveraged ETFs, as the KOSPI has now tumbled approximately 40% from its June peak. The deleveraging process, combined with foreign institutional selling driven by portfolio rebalancing constraints, overwhelmed the market and dragged the iShares MSCI South Korea ETF sharply lower.