South Korea's Kospi index, previously the world's best-performing stock market this year, has entered bear territory after falling more than 20% from its June 19 record high, including a drop of over 5% on Wednesday, according to LSEG data [2]. The sharp reversal is attributed to heightened skepticism among global investors regarding artificial intelligence (AI) stocks and the market's extreme concentration in chipmakers Samsung Electronics and SK Hynix, which together accounted for more than half of the Kospi's weighting as of June, according to Emmer Capital [2]. Despite strong earnings from these companies—Samsung reported blockbuster profit on Tuesday and memory pricing has strengthened—shares of both Samsung and SK Hynix have plunged due to concerns about the pace of AI spending rather than the sustainability of AI demand itself [2].
Jung In Yun, founder of Fibonacci Asset Management Global, noted that the correction was driven more by investor positioning than by a deterioration in fundamentals, describing Korean equities as one of the most crowded AI trades globally after a strong rally, which made them susceptible to profit taking [2]. Rising global uncertainty and worries that earnings upgrades could moderate have also contributed to increased investor caution, though Jung characterized the drop as a 'healthy reset rather than a fundamental change in the outlook' [2]. Peter Kim, global investment strategist at KB Financial Group, highlighted that the market's volatility reflects a broader shift in market behavior, with retail fund flows, leveraged ETFs, and AI-driven concentration making large swings more common [2]. The Kospi volatility index has surged over 200% since the start of the year [2].
Rolf Bulk, head of semiconductors and infrastructure at Futurum Group, emphasized that memory prices rose between 50% and 80% sequentially in the second quarter, with further increases expected later this year, underscoring strong demand and a multi-year supply shortage for memory makers [2]. This supports the view that the current market correction is a valuation adjustment rather than the end of the AI cycle [2].
While the Nikkei Asia article does not directly address the Kospi's decline, it discusses the broader context of AI and technology sector developments in Asia, including the expansion of Chinese tech companies and AI firms into new markets such as the Middle East, and the ongoing adaptation of business models to local cultures [1]. However, it does not provide specific data or commentary on South Korea's stock market or the performance of Samsung and SK Hynix [1].
CONCLUSION
The Kospi's rapid descent into bear territory highlights the risks of market concentration and shifting investor sentiment in AI-related equities, despite robust earnings and strong fundamentals for leading chipmakers. Analysts suggest the correction is a valuation reset rather than a signal of weakening AI demand, with volatility expected to remain elevated as the market digests these developments.