South Korea spent much of this year as a poster child of the scorching global AI trade. Now, by almost every measure, the $4.3 trillion stock market is rapidly losing relevance with investors.
Turnover has collapsed 70% from its peak in late May, foreigners are retreating at the fastest pace in Asia and local retail investors are also pulling back. The Kospi, the world’s best-performing equities benchmark in the first half, has since lost 22% to be the worst in the second half while its AI-heavy Taiwanese and US peers set new highs.
Behind the reversal is a market whose AI fortunes hinge disproportionately on Samsung Electronics Co and SK Hynix Inc, the two memory-chip giants at the heart of the global AI supply chain. That concentration is now a liability as investors question the durability of memory chips’ boom cycle, while the leverage-driven selloff in the past has made some global funds hesitant to return.
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Skepticism over memory chip demand was on full display when shares of Samsung fell on Thursday despite surge in quarterly profit.
Korea is now struggling to lure buyers, a problem amplified by the nearing completion of combined 55 trillion won ($41 billion) stock buybacks by Samsung and SK Hynix. Repurchases by the two chipmakers accounted for the bulk of the $23 billion worth of buy orders in the market last month, according to 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, head of research Hong Kong at Julius Baer.Read more: ET Alpha Wealth Summit 2.0: What do Shah Rukh Khan and SIFs have in common? Radhika Gupta explains
Individual investors, a key force behind Kospi’s 100% rally in the first half, remain elusive following the July rout.
Margin loans outstanding have hovered around 33 trillion won over the past month, after peaking at 38.6 trillion won in June, according to data from the Korea Financial Investment Association.