South Korea’s benchmark Kospi index surged a record 18% on Friday, with memory giant SK Hynix rallying by its 30% daily limit and Samsung Electronics climbing 27%. The rally marked the index’s largest single-day gain ever, reversing three consecutive days of steep losses.

The surge was triggered by a short squeeze. Overnight, US AI hardware stocks staged a broad rally, forcing short sellers of South Korean tech stocks to cover their positions. As prices rose, more shorts were forced to cover, creating a cascade effect that pushed stock prices even higher.

What Happened Before the Rally

SK Hynix had fallen roughly 58% from its June 25 intraday peak. The damage accelerated on July 13, when the stock plummeted 15%, triggering forced selling in leveraged ETFs. About $5 billion in ETF assets dumped into the market that day, accounting for 18% of the stock’s trading volume. Circuit breakers halted trading on July 28 and 29 for the first time back-to-back in the exchange’s history.

The Rebound Effect

When US semiconductor stocks rallied overnight Thursday into Friday, Korean investors and short sellers reacted quickly. The initial buying from the US performance forced short covers. Each wave of covering created new buying pressure, which forced more shorts to cover. The cascade triggered Kospi’s circuit breakers again on Friday, but this time in the opposite direction—trading halts due to excessive gains.

The surge doesn’t mean the underlying problems have disappeared. Investors question whether the rally reflects real earnings recovery or just technical positioning. The question facing traders now is whether this rebound will stick or if SK Hynix and Samsung simply sit closer to their July lows.

The Kospi index remains down 17% from its June peak, but Friday’s reversal offers a reminder that momentum in leveraged markets can swing as violently on the upside as the downside.