The $4.9 trillion South Korean stock market is showing signs of strain following a rally that had outpaced global peers.
The Kospi index tumbled as much as 6.4% in early Friday trading, with shares of Samsung Electronics Co Ltd and SK Hynix Inc both dropping over 7%, highlighting a sharp increase in market volatility. The Korea Exchange temporarily halted program selling of the Kospi index due to heavy futures losses.
Despite the Kospi having more than doubled year-to-date as of Thursday, the gains have been heavily concentrated in the two leading chipmakers. This makes the broader market vulnerable to a rapid pullback if the enthusiasm for artificial intelligence-related stocks cools. Retail investor participation has also started to wane, and high levels of margin trading face the risk of forced liquidation as the Bank of Korea continues its interest rate hiking cycle. Analysts note that the growing popularity of leveraged ETFs, which amplify daily moves, could further magnify any market correction.
Eugene Asset Management Chief Investment Officer Ha Seok-keun stated, "Rather than a deterioration in fundamentals, my current concern is the market's overheated positioning. It is highly probable the market will enter a period of high-volatility consolidation over the next one to two months." The market's structural concentration remains a core concern. Data from the Korea Exchange shows that Samsung Electronics and SK Hynix, buoyed by AI chip demand, together account for 54% of the Kospi index's weighting and nearly half of its average daily trading volume in May. These two companies alone contributed nearly 70% of the Kospi's gains this year.
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