South Korea's AI Boom Cools, Stock Market Trading Volume Plummets 70% from Peak
According to the Business Times, South Korea, which has represented the global AI boom for most of this year, is now rapidly losing investor interest in its $43 trillion stock market, with trading volume plummeting 70% from its peak at the end of May, as both foreign and local retail investors withdraw.
The Kospi was the best-performing major stock index globally in the first half of the year but has fallen 22% in the second half, becoming the worst performer, while AI-related indices in Taiwan and the U.S. have reached new highs. The reversal is attributed to the market's excessive reliance on Samsung Electronics and SK Hynix, two memory chip giants that together account for over half of the index's weight and are at the core of the global AI supply chain.
Foreign investors have withdrawn $131 billion from South Korean stocks this year, the highest among major Asian markets. Despite Samsung, the world's largest memory chip producer, seeing its quarterly operating profit nearly increase ninefold, its stock price still fell on Thursday, indicating doubts about the sustainability of memory demand. Samsung and SK Hynix's combined stock buyback of about 55 trillion won ($41 billion) is nearing completion, which previously provided significant buying support.
Richard Tang, head of research at Julius Baer in Hong Kong, noted that there is a growing trend of funds flowing back to U.S. stocks, leading to continued outflows from Korean stocks. Local retail investors, who were key to the nearly 100% rise in the Kospi in the first half of the year, have also remained cautious after selling off in July.
These changes have shifted funds from South Korea's heavily concentrated memory chip stocks to the broader AI supply chain in Taiwan and U.S. markets; the Korean market is under short-term pressure from leverage and concentration risks, while diversified tech hardware and the U.S. market benefit from rotation.
Source: Public Information
ABAB AI Insight
The South Korean stock market has long been centered around Samsung Electronics and SK Hynix, which dominate key AI components like high-bandwidth memory. The Kospi benefited from global AI capital expenditure in the first half of the year, becoming the best-performing market; previously, there was concentrated trading in leveraged ETFs and severe deleveraging sell-offs in the summer.
In terms of capital flow, foreign investors have net withdrawn $131 billion this year, with funds flowing back to U.S. stocks, motivated by doubts about the sustainability of the memory cycle and valuation concentration; resources are shifting from the two major Korean chip stocks and related leveraged products to the broader supply chain in Taiwan and the U.S. market, while the large-scale buybacks by the two companies nearing completion weaken support.
This is similar to other markets concentrated on a few giants that experience rapid rotation during cyclical doubts, and it is close to previous experiences where leveraged products amplified volatility; currently, Asian tech stocks are transitioning from being driven by a single memory cycle to a broader AI supply chain and diversified allocation.
Essentially, this reflects a transfer of pricing power and restructuring of the industry chain: the AI pricing power in the Korean market is overly concentrated in the two memory chip companies, with the mechanism being that doubts about demand and deleveraging amplify the decline of weighted stocks, increasing index volatility, prompting funds to flow to more dispersed supply chain segments and U.S. stocks, thereby shifting Asian AI investment from a highly concentrated Korean memory center to a broader hardware ecosystem and U.S. market center.
ABAB News · Cognitive Law
- Trading volume plummets 70%, the boom is just a memory.
- Half the index weight equals half the risk.
- Funds flow back to U.S. stocks, with Korea being the first to be sold off.