AI Boom Fades, South Korean Stocks Struggle for Buyers
South Korea has emerged as a prominent example in the thriving global AI market throughout this year. Now, by almost every measure, the 4.3 trillion stock market is rapidly losing relevance with investors. Turnover has plummeted by 70% from its peak in late May, with foreign investors withdrawing at the quickest rate in Asia, while local retail investors are also scaling back their participation. The Kospi, which was the world’s best-performing major equities benchmark in the first half, has subsequently declined by 22%, positioning it as the worst performer in the second half, while its AI-focused counterparts in Taiwan and the United States have reached new highs. At the core of the reversal lies a market where the fortunes of AI are heavily reliant on Samsung Electronics Co. and SK Hynix Inc., the two dominant players in the memory-chip sector that underpin the global AI supply chain. That concentration has now become a liability as investors scrutinise the sustainability of the memory chips’ boom cycle, while the severe leverage-driven selloff during the summer has rendered some global funds reluctant to re-enter the market.
“The biggest challenge I see for most investors – especially those who only recently got into Korea for the memory chip trade – is that the easy money in that theme has been made,” said Phillip Wool, adding his fund has been taking profit in Korean AI stocks and is now underweight SK Hynix and Samsung Electronics. The two chipmakers collectively represent more than fifty percent of the Kospi’s weighting and have driven its rise earlier this year. Foreign funds withdrew $131 billion from Korean stocks this year, marking the highest outflow among major Asian markets, as indicated by exchange data. Scepticism regarding memory chip demand was prominently evident as shares of Samsung, the leading global manufacturer of these semiconductors, declined on Thursday, despite an almost nine-fold increase in quarterly operating profit. Korea is currently facing challenges in attracting buyers, a situation exacerbated by the impending conclusion of a combined 55 trillion won stock buyback initiative by Samsung and SK Hynix. Repurchases by the two chipmakers constituted the majority of the $23 billion in buy orders recorded in the market last month, as reported by JPMorgan Chase & Co. “We have seen capital increasingly gravitate back toward US equities, contributing to ongoing foreign outflows from the Korean market,” said Richard Tang.
Individual investors, a significant driver of the Kospi’s 100% rally in the first half, have become elusive in the wake of the July rout. Margin loans outstanding have remained stable at approximately 33 trillion won over the past month, following a peak of 38.6 trillion won in June, as reported by the Korea Financial Investment Association. Broking account balances – or investor deposits awaiting deployment – have also decreased to approximately 100 trillion won from a peak of nearly 140 trillion won. “The memory names in particular have become value names, cheap at current earnings,” said Jon Withaar. “But retail and fast money hedge funds do not chase value or the concept ‘cheap’. They chase growth.” Undoubtedly, the recent declines have created favourable buying opportunities for certain investors who perceive that AI expenditures and the profitability of memory chips remain robust. Korea’s ongoing initiative to enhance corporate value serves as an additional attraction. Thanks to earlier gains, Kospi remains one of the top performers for 2026 overall.
However, for those who remain sceptical, the alternative Asian semiconductor center of Taiwan is increasingly preferred, owing to its more extensive and robust connections throughout the AI supply chain and a more optimistic earnings forecast. Up 70% this year, the Taiex Index outperformed the Kospi by approximately 23 percentage points last quarter, marking the widest margin since the turn of the century. Taiwan’s stock gains exhibit a more comprehensive nature, with approximately 10% of the local gauge’s constituents having at least doubled in value this year. That compares to 4.7% for the Kospi. “At this point in time, we prefer to express our tactical AI exposure through Taiwan equities, which offer a more complete technology hardware ecosystem and are supported by robust spending plans from major technology companies,” said Chun-Lai Wu.
