At first glance, South Korea looks ridiculously cheap.
SK Hynix trades at roughly 5x forward earnings. Samsung is a global technology giant. On paper, investors should be asking why these companies are so inexpensive.
Instead, the market keeps falling.
That is what sent me down the rabbit hole.
The more I dug, the less this looked like a valuation story.
It looks like six years of policy choices colliding with market reality.
The story begins in 2020.
When COVID hit, foreign investors dumped Korean stocks.
Normally, that kind of selling would have forced the market to find a new equilibrium.
Instead, policymakers encouraged retail investors to step in.
Buying Korean stocks became more than investing.
It became patriotic.
The government banned short selling.
Margin became easier to obtain.
Taxes were adjusted to encourage participation.
The message wasn’t subtle.
Keep buying.
Support the market.
Support the country.
And people did.
Years later, those policies didn’t disappear.
They expanded.
Tax incentives encouraged investors to move money out of foreign stocks and back into domestic champions like Samsung and SK Hynix.
The National Pension Service accumulated such large positions in those companies that, according to the discussion surrounding this story, position limits were revised rather than forcing sales.
Instead of the market adapting to the rules, the rules adapted to the market.
Then came another twist.
Earlier this year, leveraged ETFs tied to Samsung and SK Hynix were introduced.
The pitch was simple.
Make Korean stocks exciting again.
Give retail investors another reason to stay home instead of chasing U.S. technology stocks or cryptocurrencies.
According to the discussion, more than 90% of the buyers were retail investors.
That works beautifully while prices rise.
It becomes dangerous when they don’t.
Leveraged ETFs have to rebalance.
When prices fall, they sell.
That selling pushes prices even lower.
Lower prices force more rebalancing.
More rebalancing creates more selling.
What starts as an ordinary decline can become a self-reinforcing cycle.
That is why this selloff doesn’t feel like a debate over whether SK Hynix deserves five times earnings or seven.
It feels like a market dealing with the consequences of years spent encouraging leverage, concentrating ownership, discouraging short sellers, and using policy to influence where capital flows.
Every government wants rising stock prices.
Higher markets make consumers feel wealthier.
They make retirement accounts look healthier.
They make headlines look better.
The temptation is always the same.
Encourage buying.
Discourage selling.
Make leverage easier.
Reward domestic investment.
Celebrate rising markets.
The problem is that those policies don’t just amplify bull markets.
They also amplify what comes next.
A market becomes strongest when buyers and sellers are both allowed to do their jobs.
Short sellers expose weak companies.
Corrections remove excesses.
Price discovery keeps capital flowing to where it is most productive.
Interrupt that process long enough, and markets stop adjusting naturally.
The adjustment doesn’t disappear.
It gets delayed.
Cheap valuations alone won’t fix that.
A low P/E ratio doesn’t unwind leverage.
It doesn’t reduce concentrated ownership.
It doesn’t stop forced ETF selling.
It doesn’t erase years of policy designed to support prices instead of letting markets clear on their own.
That may be the real lesson from South Korea.
The biggest risk isn’t that policymakers tried to support the market.
It’s that they spent six years making the market increasingly dependent on that support.
Because once investors begin believing the government will always keep the market rising, every decline becomes harder to absorb.
And every attempt to prevent normal corrections makes the eventual adjustment more complicated than it needed to be.