Inside the wildest month South Korea’s stock market has had in years

South Korea’s stock market ended July with a historic rally, capping an extraordinary month of boom, bust, and whiplash.

On Friday, the benchmark Kospi index closed 18% higher in a record single-day surge, ending the month 22% lower. The index is about 30% lower than its June peak.

Samsung Electronics and SK Hynix led the rebound with gas of 27% and 30%, respectively, as optimism returned to beaten-down AI stocks following an overnight tech rally on Wall Street.

The wild swings reverberated far beyond Seoul.

Home to AI memory giants Samsung Electronics and SK Hynix, South Korea’s chip-heavy Kospi has emerged as a key barometer for the global AI trade, with investors increasingly looking to the benchmark for clues about where Wall Street’s technology stocks might head next.

The Kospi’s newfound influence was built on a blistering first-half rally. Surging demand for AI memory chips sent Samsung Electronics and SK Hynix to record highs, helping the benchmark more than double and making it one of the world’s best-performing stock markets.

However, the rally also left the market increasingly dependent on just two companies. As investors crowded into Samsung Electronics and SK Hynix, the broader index became far more vulnerable when sentiment turned.

Retail leverage added another layer of risk. Retail investors piled into leveraged single-stock exchange-traded funds linked to Samsung Electronics and SK Hynix, which offer magnified daily exposure to individual stocks.

Launched in May — just weeks before South Korea’s AI rally peaked — the products quickly became a popular way to bet on the country’s AI champions.

The timing could hardly have been worse.

As investors began cutting exposure to AI and technology stocks globally over concerns about stretched valuations, intensifying competition from Chinese chipmakers, and the sustainability of AI spending, the leveraged ETFs amplified the selloff by forcing rebalancing into falling markets.

Strong earnings were not enough to stop the rout. Samsung reported record quarterly profits, while SK Hynix also delivered sharp profit growth, but investors had set an unusually high bar for memory-chip stocks.

The worst month since 2008

The scale of the correction eclipsed some of Korea’s darkest market episodes.

The Kospi’s 22% drop in July was its worst monthly decline since the 23% plunge during the global financial crisis in October 2008. Its biggest monthly loss on record remains the 27% slump during the Asian financial crisis in October 1997.

The market’s sharp correction reflected “short-term distortions in trading dynamics” rather than weakening fundamentals, said Jeff Kim, head of research at KB Securities.

Kim expects AI memory shortages to persist for years, arguing that only about 60% of big tech companies’ demand is currently being met and that new memory capacity takes years to build.

Goldman Sachs struck a similar tone, arguing the selloff reflected positioning as much as deteriorating fundamentals.

“We think the ongoing positioning de-grossing in tech/AI has accelerated in recent weeks amid investor fears around intensifying competition from China,” the bank’s analysts wrote Thursday, pointing to new open-source frontier models, Chinese memory-chip maker CXMT’s listing, and advances in China’s domestic chipmaking capabilities.

The bank warned that “tech volatility could stay elevated in the near term” as concerns about AI spending persist, and leveraged positioning has not been fully cleared.