South Korea’s AI Market Faces Decline Amid Investor Retreat
South Korea has recently become emblematic of the thriving global artificial intelligence (AI) market. However, despite its initial allure, the nation’s $4.3 trillion stock market is swiftly spiraling into obscurity, casting doubt on its former prestige.
In a stark shift, trading volume has plummeted by 70% since its zenith in late May. Foreign investors have rapidly withdrawn, leading the Asian markets in this exodus, while local retail investors have also retreated.
The Kospi, which soared as the premier performing global equities benchmark in the first half of the year, has since suffered a 22% decline, rendering it the worst performer in the latter half of the year—contrasting sharply with its AI-focused counterparts in Taiwan and the United States that are achieving unprecedented highs.
The underlying cause of this downturn lies in the concentration of AI successes among just two corporations: Samsung Electronics Co. and SK Hynix Inc.
These memory-chip titans are pivotal to the global AI supply chain. However, their dominance has begun to weigh heavily on investor sentiment, as doubts arise regarding the longevity of the memory chip boom.
Compounding this skepticism is a substantial selloff driven by leveraged positions earlier in the summer, prompting caution among international fund managers.
Phillip Wool, head of portfolio management at Rayliant Global Advisors, observes, “The biggest challenge I see for most investors — especially those who only recently engaged with Korea for the memory chip trade — is that the easy money in that theme has been made.”
Wool mentions his fund’s decision to take profits in Korean AI stocks, now holding a reduced position in Samsung Electronics and SK Hynix.
These two chipmakers represent over half of the Kospi’s capitalization and were instrumental in its rise earlier this year.
Notably, this year has witnessed a withdrawal of $131 billion by foreign funds from Korean equities—an outflow that eclipses that of any other major Asian market, as reported by Bloomberg’s compiled exchange data.
Investor skepticism regarding memory chip demand was exemplified when shares of Samsung, the leading global manufacturer of these semiconductors, experienced a decline despite announcing a nearly nine-fold increase in quarterly operating profit.
Complications further amplify South Korea’s challenges in attracting buyers. This situation is exacerbated as Samsung and SK Hynix approach the realization of a combined 55 trillion won ($41 billion) in stock buybacks.
According to JPMorgan Chase & Co., these repurchases accounted for the majority of the $23 billion in buy orders recorded last month.
Richard Tang, head of research in Hong Kong for Julius Baer, notes, “We have seen capital increasingly gravitate back toward US equities, contributing to ongoing foreign outflows from the Korean market.”
Individual investors, once a driving force behind the Kospi’s remarkable 100% rally in the first half, remain notably elusive following the July market downturn.
Data from the Korea Financial Investment Association indicates that margin loans outstanding have stabilized around 33 trillion won over the last month, down from a peak of 38.6 trillion won in June.
Moreover, brokerage account balances—representing investor deposits awaiting investment—have declined to approximately 100 trillion won, compared to nearly 140 trillion won at their high.
Portfolio manager Jon Withaar from Pictet Asset Management in Singapore remarks, “The memory names in particular have become value names, cheap at current earnings. However, retail and fast-money hedge funds tend to avoid chasing value or perceived ‘cheapness’; they are drawn to growth.”
Despite the prevailing declines, some investors still perceive opportunities in the market, believing in the continuous viability of AI expenditure and memory chip profitability.
Additionally, South Korea’s ongoing initiatives to enhance corporate value offer further enticement, keeping the Kospi among the leading performers for 2026 overall.
Conversely, for those uncertain about the prospects of the Korean market, Taiwan is emerging as a more desirable alternative, buoyed by its extensive integration within the AI supply chain and a more optimistic earnings forecast.
The Taiex Index has surged 70% this year, surpassing the Kospi by roughly 23 percentage points in the last quarter—marking the widest gap since the early 2000s.
Taiwan’s stock gains have been notably widespread, with around 10% of its constituents achieving at least double their value this year, in stark contrast to the mere 4.7% of the Kospi.
Chun-Lai Wu, head of Asia Asset Allocation at UBS Global Wealth Management Chief Investment Office, asserts, “At this moment, we prefer to express our tactical AI exposure through Taiwanese equities, which provide a more comprehensive technology hardware ecosystem and benefit from robust spending plans from major technology companies.”
Source link: M.economictimes.com.
