Currency traders monitor exchange rates as an electronic screen (above) displays the South Korean benchmark stock index (KOSPI) in a currency trading room at Hana Bank’s headquarters in Seoul on June 23, 2026.
Jade Gao | AFP | fake images
The South Korean stock benchmark index, Kospihas gone from being the world’s most popular stock market to entering bear territory in just a few weeks, highlighting how investors have soured on AI plays and underscoring the risks of concentration.
The Kospi fell more than 5% on Wednesday, putting it 20% below its all-time high on June 19, according to LSEG data. It closed slightly higher on Thursday in a volatile session.
“South Korea’s recent decline has been driven by increased skepticism about AI from global investors, coupled with extreme market concentration,” said Manishi Raychaudhuri, CEO of Emmer Capital.
The speed of the reversal brings to light a central feature of this year’s rally: South Korea’s heavy reliance on AI trading. Chipmakers Samsung Electronics and SK Hynix accounted for more than half of the Kospi’s weighting in June, according to data provided by Emmer Capital. This extreme dependence has raised and lowered the index.
Kospi’s performance so far this year
“The correction has been driven more by positioning than a deterioration in fundamentals,” said Jung In Yun, founder of Fibonacci Asset Management Global. Korean stocks had become “one of the busiest AI trades globally after a very strong rally, so it didn’t take much to trigger profit-taking,” he added.
Rising global uncertainty and concerns that earnings improvements could moderate have also made investors more cautious, although he described the Kospi’s decline as “a healthy reset rather than a fundamental change in the outlook.”
Peter Kim, global investment strategist at KB Financial Group, argued that the move also reflects a broader shift in the behavior of modern markets.
“The gamification of finance has led to such swings driven less by fundamentals but by news flows and fads,” he said, adding that retail fund flows, leveraged exchange-traded funds and AI-driven concentration have made swings of 5% to 10% increasingly common. The Kospi volatility index is up more than 200% since the beginning of the year.
Valuation Adjustment
Kospi has been hit lately despite strong earnings for the companies that were at the center of the selloff. Samsung reported blockbuster earnings on Tuesday, while memory prices continue to strengthen. Shares of the chip giant, however, plunged on concerns about AI spending.
“The market is questioning the pace of earnings growth rather than the sustainability of AI demand itself,” Fibonacci’s Jung said. “This distinction is important because it suggests we are seeing a valuation adjustment rather than the end of the AI cycle.”
Underscoring the strong demand, Rolf Bulk, head of semiconductors and infrastructure at Futurum Group, said memory prices increased by 50% to 80% sequentially in the second quarter, with further increases expected later this year.
The fundamentals for memory makers remain intact, Bulk added, citing a multi-year supply shortage and long-term contracts with hyperscale customers. KB Financial Group’s Kim echoed that “fundamentals and earnings visibility make the current correction an opportunity for those who can stomach the near-term volatility.”
The Kospi is still up more than 70% this year, after gaining more than 75% last year.
“While volatility may persist in the short term, I think the medium-term outlook remains constructive,” said Fibonacci’s Jung. “Once global risk sentiment stabilizes, foreign investors are likely to revisit Korea, given its central role in the global AI supply chain.”
However, the timing of any sustained recovery in South Korea’s stock market remains difficult to predict and will depend in part on broader global market conditions, experts said.
SK Hynix’s U.S. IPO on Friday could provide a short-term boost to memory stocks, according to Bulk. Constructive feedback from management on memory cycle durability through the second half of 2026 could help boost both chipmakers and Kospi overall, he added.
“SK Hynix and Samsung Electronics’ 2Q26 earnings release later this month may be an additional positive factor – constructive comments from both companies on cycle sustainability in the second half of 2026 could support stocks and the broader Korean market.”