[Financial Channel/Comprehensive Report] The Korean stock market, once the most popular target for artificial intelligence (AI) trading in the world, has now fallen into a rapid cooling. South Korea's Composite Stock Price Index (Kospi) led the world in gains in the first half of the year, but fell by 22% in the second half of the year, becoming one of the world's worst-performing major stock indexes. With the net withdrawal of foreign capital reaching US$131 billion this year, transaction volume plummeting 70% from the peak, and the delay in the return of retail investors' leveraged funds, the AI investment boom in Korean stocks is facing a test. In comparison, Taiwan's stock market has risen by 70% this year, gradually becoming an alternative option for institutional investors to invest in AI topics.
According to foreign media reports, according to Bloomberg, while South Korean stocks are experiencing capital withdrawals, Taiwanese stocks and U.S. stocks continue to hit record highs, reflecting that the layout of global AI investment funds is changing. Chun-Lai Wu, head of Asia asset allocation at UBS Global Wealth Management, said that they are currently more inclined to grasp tactical AI investment opportunities through Taiwan stocks because Taiwan has a more complete technology hardware ecosystem and is supported by strong spending plans of major technology companies.
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Another advantage of Taiwan stocks is that the upward momentum is not concentrated in a few stocks. This year, about 10% of the constituent stocks in Taiwan's stock market have at least doubled, while only 4.7% of the constituent stocks in South Korea's Kospi have achieved the same increase. Last quarter, Taiwan stocks led Korean stocks by about 23 percentage points, setting the largest single-quarter performance gap this century.
The sharp decline in Korean stocks is closely related to the market's high concentration on the memory chip industry. The two chip giants Samsung Electronics and SK Hynix together account for more than 50% of Kospi's weight. They were the main driver of the index's surge in the first half of the year and are now also the key drag on market performance.
Market enthusiasm for memory chip stocks is cooling. Phillip Wool, director of portfolio management at Rayliant Global Advisors, pointed out that for investors who only recently entered the market due to the memory chip market, the easy profits in this wave of transactions no longer exist. He revealed that his funds have taken profits on Korean AI concept stocks and are currently adopting underweight strategies on SK Hynix and Samsung Electronics.
Market concerns are also reflected in Samsung Electronics' stock price. Last Thursday, Samsung Electronics announced that quarterly operating profit increased nearly 9 times year-on-year, but its stock price fell instead of rising, indicating that the bright financial report is no longer enough for investors to continue chasing prices.
In addition to the weakening appeal of the AI theme, another support for Korean stocks is also about to fade. Samsung Electronics and SK Hynix are nearing completion of their share buyback plans totaling approximately 55 trillion won. According to JPMorgan Chase data, buybacks by the two chip companies accounted for most of the approximately US$23 billion in buying orders in the South Korean market last month. Once the buyback comes to an end, the market may face pressure to reduce buying.
Richard Tang, head of Hong Kong research at Julius Baer, said that funds are increasingly returning to the U.S. stock market, exacerbating the Korean market's continued foreign capital outflows.
Retail funding has also yet to recover. Data from the Korea Financial Investment Association show that the financing balance of Korean stocks has remained at about 33 trillion won in the past month, lower than the peak of 38.6 trillion won in June; investor deposits waiting to enter the market in brokerage accounts have also dropped from a historical high of nearly 140 trillion won to about 100 trillion won.
Jon Withaar, Singapore portfolio manager at Pictet Asset Management, pointed out that memory chip stocks already have the characteristics of value stocks based on current profits, and their valuations are relatively cheap. However, retail investors and short-term hedge funds are chasing growth, not simply low valuations. This also reflects that even if corporate profits are still attractive, market funds may not be willing to continue chasing prices.
However, investment opportunities in Korean stocks are not completely lost. Some investors believe that the recent decline may create a time to enter the market. AI spending and memory chip profitability are still resilient. In addition, South Korea continues to promote reforms to enhance corporate value, which also provides certain support for the market. Due to strong gains in the first half of the year, the overall performance of Korean stocks this year remains at the forefront.
However, when foreign capital withdraws, retail investors' leverage funds shrink, and chip giants' buyback support is about to disappear, Korean stocks still have to face the market's re-evaluation of growth momentum if they want to attract funds again. In contrast, Taiwanese stocks, which have a complete technology hardware supply chain and are favored by institutional investors, are becoming an important option when global AI funds are reallocated.
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