A familiar warning is emerging across Asia as borrowed money clusters around technology stocks and smaller companies face forced sales.
The sharp collapse in South Korean stocks in the summer of 2026 showed how borrowed money can turn an ordinary sell-off into a full-scale market crisis. South Korean technology companies linked to artificial intelligence remain at risk, but Asia’s next market crash could unfold according to a different scenario.
As informed by Reuters
The KOSPI lost 39% between June 22 and July 30. One of the main causes was the rapid buildup and subsequent mass unwinding of margin lending among retail investors.
Amid the excitement surrounding artificial intelligence, millions of South Korean traders borrowed money from brokers to buy shares in technology giants and highly volatile leveraged exchange-traded funds focused on individual stocks. This partly explains why the KOSPI had risen 116% in the year leading up to June 22.
When technology stocks began falling in June amid doubts about the sustainability of artificial intelligence development spending, the value of collateral declined. Brokers began demanding that clients provide additional cash or securities to cover their losses.
Many traders did not have enough money to meet these demands. As a result, brokers automatically sold assets from more than a million leveraged accounts. This created a self-reinforcing wave of liquidations that wiped out billions of dollars in market value, even without any significant deterioration in companies’ fundamentals.
A similar dynamic is emerging in other major Asian markets. Margin lending volumes have risen noticeably, creating new potential sources of instability.
In India, the value of margin-financed positions increased from just over $1 billion at the end of 2020 to $16.3 billion as of August 31, 2026.
In China, outstanding margin loans rose from $68 billion at the beginning of 2019 to $200 billion as of August 31. In Japan, margin-loan debt nearly doubled, from $18 billion at the beginning of 2020 to more than $35 billion.
A Small Share, a Major Risk
At first glance, margin loans in Asia account for a relatively small share of total stock-market capitalization. In India, the figure is 0.3%, while in Japan it is 0.45%.
However, at its peak in late June, South Korea’s margin debt reached 38.7 trillion won, or $28.75 billion. That amounted to only about 0.6% of the market’s capitalization, but it was still enough to trigger substantial losses once forced selling began.
The situation in China is the most concerning. Margin loans on the Shanghai Stock Exchange reached 1.34 trillion yuan, or $200 billion, equivalent to roughly 2% of the market’s capitalization.
Moreover, China’s figure is 8% above the previous peak recorded in May 2015. That surge in leverage preceded a 48% drop in the Shanghai Composite Index over the following eight months. A direct comparison is not entirely appropriate because trading rules and regulatory oversight have changed, but the scale of borrowed financing remains a serious warning sign.
Risks Are Concentrated in Different Segments
What matters is not only the overall volume of margin loans, but also which assets that money is being used to buy.
South Korea demonstrated how destructive concentrated leverage can be. When margin debt on the KOSPI reached its peak in the third week of June, Samsung Electronics and SK Hynix accounted for 9.09 trillion won, or $5.9 billion. That was nearly 31% of all leverage on the index.
The high proportion of these companies is partly explained by their weight in the KOSPI itself: together, they make up more than 30% of the index. At the same time, the concentration of leveraged positions helped intensify the decline: Samsung Electronics shares plunged 43%, while SK Hynix shares fell 55%.
In China, traders are also directing borrowed capital primarily into shares of large electronics companies, semiconductor manufacturers, and telecommunications firms. Because of the size of these corporations, a rapid unwinding of margin positions could have a significant impact on the broader market.
In Japan, the structure of margin purchases resembles South Korea’s reliance on large technology companies. A significant share of borrowed financing is concentrated in semiconductor and electronic-component manufacturers, including Kioxia Holdings, Murata Manufacturing, Tokyo Electron, and Ibiden.
The Indian market has a different characteristic. According to India’s stock exchanges, 55% of margin loans are concentrated in micro-cap, small-cap, and mid-cap companies. In the event of a sharp sell-off, investors may need to sell larger, more liquid stocks to meet brokers’ demands. This could spread the decline far beyond the most speculative segment.
Regulators Are Trying to Contain the Threat
Regulators have already taken notice of the growing risks associated with margin lending. In September 2026, South Korea’s Financial Services Commission introduced several measures to restrict trading in extremely volatile exchange-traded funds linked to individual stocks.
In July, the Reserve Bank of India banned the use of loans secured by shares to purchase securities or participate in initial public offerings. In January, China’s securities regulator raised the minimum collateral requirement for new margin accounts to 100%.
These measures do not eliminate the risk entirely, but they may prevent it from spreading rapidly. At the same time, the appeal of margin loans depends heavily on the cost of borrowing.
The decline in South Korean stocks intensified after the Bank of Korea warned that interest rates could be raised. Rates are also generally trending higher elsewhere in the region, while China remains an exception. More expensive financing could force investors to reduce positions purchased with borrowed money more quickly.
Therefore, the next crisis in Asian stock markets will not necessarily repeat the South Korean scenario. The trouble could emerge in China, India, or Japan – where leverage is concentrated in different sectors and groups of companies. This hidden concentration of borrowed capital could become the main driver of a new wave of large-scale sell-offs.