South Korean stocks surge 9% as chipmakers rally on US AI capex
South Korea's Kospi has rallied 9% in three days driven by heavyweight chipmakers and better-than-expected GDP, though the index remains deep in bear market territory.
South Korea’s Kospi has jumped 9% over the past three days, led by a sharp rebound in semiconductor stocks that make up just over half of the benchmark index. Shares of Samsung Electronics and SK Hynix rose up to 6% today, providing the main thrust for the recovery. Despite the recent bounce, the Kospi remains firmly in a bear market, sitting more than 24% below its June peak of 9,386.
The rally coincides with renewed confidence in the global semiconductor cycle. US technology giants Alphabet and Tesla outlined capital expenditure plans showing no slowdown in AI infrastructure spending. Alphabet raised its expected capital expenditure for the year to between $195 billion and $205 billion.
"The bigger takeaway is that AI is rapidly moving from infrastructure to disruption, with hyperscalers increasingly using AI to challenge incumbent platforms across search and e-commerce, reinforcing the AI disruption trade," said Gary Tan, portfolio manager at Allspring Global Investments.
Domestic economic data also provided a floor for equities. South Korea’s economy expanded 0.6% in the second quarter from the previous quarter on a seasonally adjusted basis, beating a median estimate of 0.4%. While this represents a sharp slowdown from the 1.8% growth seen in the first quarter, it indicates that chip-led expansion can sustain the economy as policymakers begin a tightening cycle this month.
However, the structural vulnerabilities that triggered the initial crash remain unresolved. The market's extreme volatility has inflicted heavy losses on retail investors, who saw major portions of their yearly gains wiped out by single-stock derivative products tied to Samsung and SK Hynix.
Foreign investors were the primary drivers of the recent correction. "The KOSPI's correction was mainly led by foreign equity investors' selloff in terms of rebalancing and profit-taking," Citi analysts said in a note. "However, we believe foreign equity investors' selloff is moderating amid emerging signs of buy-on-dip capital flow."
The government is openly acknowledging the instability. President Lee Jae Myung noted that the domestic stock market is "quite unstable," arguing that an unprecedented surge requires time and fluctuation to stabilise. For institutional investors, the direction of the Kospi now hinges on whether foreign buying outweighs the ongoing unwind of retail leverage.
