The KOSPI has become the standout story for volatility surrounding the AI trade, having surged more than +120% at its peak earlier this year as Samsung Electronics and SK Hynix rode the boom in AI-linked memory demand. But the rally became increasingly narrow and heavily leveraged, inevitably resulting with traders running for the exits all at once leading to a more than 40% savage correction as speculative positions were unwound.
The latest pressure has come from surging global bond yields colliding with renewed concerns around semiconductor valuations, sending the KOSPI down ~6% on Wednesday as Samsung fell 7.8% and SK Hynix 10%. Korea’s 10-year yield has climbed sharply to ~4.34%, raising the discount rate on the very stocks that drove the rally in the first place. Interestingly, HSBC chose Wednesday’s sell-off to upgrade Korea to Overweight, arguing that much of the excess leverage has now been flushed out and earnings remain exceptionally strong, setting up a familiar battle between near-term valuation pressure and the longer-term AI earnings story – we can see their argument, but it’s more of a coin toss for MM with the China threat looming large.
- We are 50-50 as to whether the KOSPI retests 5000 or this current move is a pullback to buy.
