South Korea’s world-beating stock rally stumbles as risk-off wave hits

Seoul has been one of the world’s hottest stock markets since last year thanks to voracious demand for memory chips to work alongside AI processors such as those made by Nvidia. Bloomberg

• Kospi drops 5.6%, biggest fall since November, driven by tech stock selloff.
• Samsung and SK Hynix fell over 6% due to AI spending and rate concerns.
• Despite the rout, Kospi is up 19% this year, driven by strong earnings momentum.

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For much of the past year, South Korean stocks stood out as an anomaly, continuing to rise even on days when the global AI boom took a break in other markets. Monday’s rout is now testing investor confidence.

What started as a modest downturn quickly morphed into a sharp selloff, with the nation’s equities swept up in the unwinding of crowded trades along with gold and silver. Uncertainty over interest-rate policy and doubts about the durability of AI-driven spending weighed heavily on technology shares.

The Kospi tumbled as much as 5.6%, the most since November, and a slide in futures triggered a halt in program trading on the benchmark index. Samsung Electronics Co. and SK Hynix Inc., the chip heavyweights that engineered the country’s world-beating gains since the start of last year, fell more than 6% each at the day’s lows. The won also weakened.

Unease over Kevin Warsh’s nomination as the next Federal Reserve chair was compounded by Nvidia Corp. Chief Executive Officer Jensen Huang’s comments that the proposed $100 billion investment in OpenAI was “never a commitment.” The question is whether the downturn marks a temporary blip in Kospi’s upward trajectory, or the start of a deeper correction.

“Just last month the market was wrapped in optimism and hope, but its abrupt plunge seems to have sparked a wave of panic selling,” Han Jiyoung, an analyst at Kiwoom Securities Co., wrote in a note. “Yet the key engines of Korea’s bull market — strong earnings momentum and minimal valuation pressure — remain firmly intact.”

Seoul has been one of the world’s hottest stock markets since last year thanks to voracious demand for memory chips to work alongside AI processors such as those made by Nvidia. The Korean market has climbed to a valuation of over $3.3 trillion, overtaking Germany last week to rank as the world’s 10th‑largest, just behind Taiwan. The Kospi last month surpassed the ambitious goal of 5,000 set by the nation’s president in a historic milestone.

Domestic and foreign funds were sellers of Korean stocks on a net basis Monday. Retail investors bought shares, helping to trim Kospi’s loss for the day back below 4%. Sentiment was weak across the Asian region, with the MSCI Asia Pacific Index down around 2%, with tech the biggest drag.

“Jensen’s comments likely had a near‑term sentiment impact, particularly on AI‑exposed names that have rallied strongly year to date,” said Gary Tan, a portfolio manager at Allspring Global Investments. “The remarks primarily served as a profit‑taking catalyst, as we see some unwinding of crowded trades across the market.”

The Korean won fell as much as 1.3% to 1,459.20 against the dollar, marking the biggest daily decline since October. The Korean currency underperformed Asian peers broadly, compounded by foreign selling.

Even with Monday’s pullback, the Kospi remains up 19% for the year, among the world’s best-performing major indexes. Some investors see it as a healthy pullback necessary to power the market’s next leg up, noting how the selloff was driven by sentiment rather than any material changes to the investment thesis.

“Today’s selloff in AI names on the Kospi is exactly the kind of move I want to buy into,” said Jung In Yun, chief executive officer at Fibonacci Asset Management Global. “Nothing meaningful has changed in the real world. Orders have not been cut, capex has not disappeared, and the structural AI demand story is fully intact.”

Korea’s two largest stocks — Samsung and SK Hynix — had both been setting fresh records regularly, with their latest earnings showing strong profit gains.

“There could be technical selling pressure as traders book some profits on the very strong positive share price movements of memory companies and South Korean equities year to date,” said Cameron Chui, an equity strategist at JPMorgan Private Bank.