South Korea’s AI-driven market shapes global stock trends
Checking South Korean equities has become a new ritual for fund managers in Tokyo, New York, and London before trading begins. Once a peripheral market for many global investors, Korea’s $4 trillion equity market is providing an early indication of risk appetite as AI-driven fluctuations in Samsung Electronics Co. and SK Hynix Inc. reverberate through global chip stocks. The shift is reshaping investment routines. For the first time in his 14-year tenure, the chief Asia market strategist at JPMorgan Asset Management delivered a presentation on Korea to the firm’s global team. Japanese traders are incorporating the Kospi Index into their watch lists. “We are all Korean investors now,” stated Hani Redha. However, the expanding influence of the market presents certain challenges. The Kospi has emerged as one of the globe’s most volatile major benchmarks, with leveraged trading exacerbating fluctuations. SK Hynix’s recent US listing has broadened Korea’s footprint on Wall Street. The outcome reflects the nation’s sentiment-driven trading progressively influencing the dynamics of global AI stocks continuously throughout the day.
Korea may experience another tumultuous session when markets resume trading after an extended weekend. Global chip peers experienced a sell-off on Friday, prompted by an unexpected advancement from a Chinese AI startup that rekindled concerns regarding substantial capital expenditure investments. Redha begins each day by assessing the situation in Seoul to gauge the dynamics of the AI trade. Once the Korean market closes, his attention turns to SK Hynix’s American depositary receipts and Korea-focused exchange-traded funds in New York. “It’s like almost 24-hour tracking,” he stated. That dynamic was prominently evident last week. A local selloff on Monday, prompted by renewed doubts regarding future demand for AI, resulted in a nearly 9% decline in the Kospi, with the ensuing weakness extending to Wall Street. SK Hynix’s US-listed shares experienced a decline of 9.3%, which subsequently impacted other prominent semiconductor stocks. The tighter linkage is increasingly evident in the data. The 60-day correlation between the Kospi and the Nasdaq 100 has risen to 0.46, approaching the highest level observed in two years and nearly three times its five-year average of 0.16, as per data.
“Korea has effectively become part of the same volatility ecosystem as the Nasdaq and SOX, with SK Hynix, Samsung and the Kospi now functioning as a pre-market read-through on US AI and semiconductor risk,” said Ivan Feinseth. He added that the Asian country is no longer “a distant emerging-market side show.” The influence of Korean stocks becomes particularly evident during periods of decline. The sensitivity of the Nasdaq 100 Index to the Kospi during periods of weakness in the Korean market reached its highest level since 1990 on July 7, as reported. A comparable metric for the MSCI World Index has likewise ascended to a four-year peak earlier this month. The correlation between the Kospi and Japan’s Nikkei 225 has experienced a significant increase. That has led Andrew Jackson, to include a chart of the Kospi for close monitoring earlier this year, marking a first for him in over two decades. Herald van der Linde, said Korea is discussed in “all meetings” nowadays. Over at JPMorgan Asset Management, its chief market strategist for Asia Pacific Tai Hui said “I think I’ve not presented to my global team on Korea until this year.”
Korea’s influence, however, may diminish as the market rout persists. The Kospi Index has declined by 25% since its peak in June, leading to a $1 trillion loss that poses a risk to its international influence. The two chipmakers have each experienced a decline of no less than 30% in their market value. The country’s decision to temporarily halt new listings of single-stock leveraged exchange traded products may also assist in mitigating speculation and volatility. Nonetheless, the benchmark continues to show an increase of 62% for the year, positioning it among the top performers globally. Given the pivotal role of SK Hynix and Samsung Electronics in memory chip supply, the Korean market is poised to remain the epicentre of global AI investment in the foreseeable future. “This is the new normal investors have to accept, as long as the AI rally continues,” said Chisa Kobayashi. “The fact that markets are being driven by a relatively immature market with leverage.”
