South Korea's stock market is climbing, with the benchmark index approaching a technical bull market as a global rebound in artificial intelligence-related trading drives a rapid reversal of last month's historic sell-off.
On Thursday, the benchmark Kospi index surged as much as 4.8%, bringing its total gain to approximately 23% from the July 30 low. Heavyweight stocks including chipmakers Samsung Electronics and SK Hynix contributed the most to the index's advance, with both companies' shares rising more than 5%.
As global tech giants continue to report massive AI-related spending in their latest earnings, enthusiasm for technology hardware stocks is returning. This sentiment marks a sharp contrast with recent months, when forced liquidation of leveraged chip stock positions led to trading halts and cost retail investors billions of dollars in losses. Recent government restrictions on single-stock leveraged ETFs and signs of reduced margin debt by investors are helping to stabilize the market.
"I believe the market was oversold during the liquidation process, and the current rebound is a natural response as capital flows stabilize," said Kang DaeKwun, CEO of Life Asset Management. "However, in my view, it will be difficult for the market to sustain a continuous upward trend until the AI-related narrative and U.S. interest rate landscape stabilize."
The moderate U.S. inflation report released on Wednesday provided a fresh positive catalyst, easing concerns about an imminent Federal Reserve rate hike and boosting shares of U.S.-listed chip peers. Additionally, expectations that Samsung Electronics and SK Hynix will soon announce shareholder return plans have lifted sentiment in recent trading sessions.
Year-to-date, the Kospi index has risen more than 60%, driven by retail investor flows, but it remains roughly 24% below its late June high. The index plunged 22% in July, marking its worst monthly performance since the global financial crisis.
Last month's market turmoil led to a record number of trading halts, with the Kospi index frequently experiencing intraday swings of more than 5%. As volatility indicators have fallen to their lowest levels since April, the market is beginning to calm down.
The market turmoil has gradually subsided as regulators strengthened measures to curb retail investors' frenzied demand for single-stock leveraged ETFs tied to chipmakers. Under new minimum cash margin requirements, daily trading volumes for these products have dropped sharply.
As the market became crowded and overheated, foreign investors have remained net sellers, withdrawing more than $100 billion from South Korean stocks this year. However, as the sell-off pushed valuations to more attractive levels, some overseas funds have begun to return.
"Memory demand has exploded due to the application of AI agents and physical AI, but when we entered this space, the supply capacity was quite limited — that's the bottleneck," said Qian Zhang, an emerging market equity investment specialist at Baillie Gifford. "We're not saying the world will build data centers at this pace forever, but it is indeed a real physical bottleneck that only a few companies globally can address."
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