South Korea’s stock market is becoming one of the world’s most important gauges for the AI trade, with its sharp swings increasingly spilling over into Wall Street and beyond.
On Tuesday, the country’s benchmark Kospi index closed 3.6% higher following a program trading halt, extending another volatile stretch that began when a record-setting rally earlier this year gave way to a sharp pullback in recent weeks. Samsung Electronics’ stock closed 6.2% higher while SK Hynix’s shares ended 4.1% up.
Once dismissed as a market trading at a discount to its global peers, South Korea has become a focal point for investors as AI spending turbocharged chipmakers Samsung Electronics and SK Hynix, reshaping the country’s stock market.
That’s becoming a problem for global markets.
“What may be most unsettling to investors, though, is the degree to which the violent moves in Korea have become the ‘Tail’ that ‘Wags the Dog’ of global asset markets broadly, and NDX specifically,” wrote analysts at Evercore ISI, referring to the Nasdaq-100 index.
They added in the Sunday note that the correlation between the Kospi and the Nasdaq 100 has reached “an astounding .95,” suggesting the two markets have recently moved almost in lockstep as investors increasingly treat South Korea as a proxy for the AI trade.
South Korea’s market has become “effectively a barometer for the AI trade,” Michelle Gibley, the director of international equity research and strategy at the Schwab Center for Financial Research, wrote in a Monday note.
Gibley attributed the market’s volatility to memory chips’ critical role in the AI supply chain, booming chipmaker profits, South Korea’s heavy concentration of semiconductor stocks, and growing leverage.
Those forces helped propel the Kospi to record highs earlier this year, alongside optimism over President Lee Jae Myung’s market reforms aimed at narrowing the country’s longstanding “Korea discount.”
Leveraged bets amplify market swings
Retail investors have added another layer of volatility by pouring money into leveraged single-stock ETFs, particularly those tied to Samsung and SK Hynix, magnifying swings in the market’s biggest AI stocks.
The result has been dramatic gains and equally dramatic losses that have already triggered the Kospi’s circuit breaker seven times this year.
“Korea has become a focal point for investors, where intensifying memory scarcity meets unusually concentrated exposure across its economy and equity market, while a risk-seeking retail base magnifies that concentration through leveraged single-stock bets, driving violent index price action,” Evercore’s analysts wrote.
The volatility became so extreme that South Korean regulators have paused approvals for new leveraged single-stock ETFs, seeking to rein in speculative trading.
The regulators’ move underscores just how heated the market had become. Evercore said the boom-and-bust pattern is typical of major investment themes like AI.
“The six-week drawdown has been relentless, but tech investors know the pattern: powerful secular themes overshoot in both directions, lasting ‘longer than investors can stay solvent,’ particularly when copious leverage is involved,” the analysts wrote.
The Kospi is 18% lower over the past month but remains 113% higher over the past year. The index is 60% higher year to date.
