Korean stocks have been whacked ~20% this week, a week after billions poured into the US-traded EWY ETF, the most in the fund’s more than 25-year history. The index is coming under pressure on three fronts, having previously benefited from the rebound in memory pricing and strong AI-driven demand for high-bandwidth memory (HBM) used in data centres:
- Following its parabolic rise since mid-2025, it was prime for some profit taking – it’s been as dramatic as it was for gold/silver in late January, early February.
- South Korea’s market is heavily concentrated in memory semiconductor companies such as Samsung Electronics and SK Hynix. Recent weakness in global tech and memory stocks has had an outsized impact on the index.
- South Korea imports almost all of its energy. The surge in oil prices following Middle East tensions raises inflation risks and corporate cost pressures, which tend to weigh on Korean equities.
As global investors rotated back into cyclical tech hardware rather than software, Korea has been a significant beneficiary, but the KOSPI often experiences larger moves during global risk-off periods because it has a high share of cyclical exporters and is widely used by global investors for tactical trades. When sentiment turns, hedge funds and foreign investors tend to sell Korea quickly, especially after it has surged threefold in less than 12-months.
The EWY ETF, like the KOSPI, is heavily concentrated in Samsung and SK Hynix, which make up ~44% of the ETF, but it gives excellent exposure to quality chip makers, albeit not broad-based.
- We can see further short-term weakness/volatility in the EWY ETF, but we like it medium term, believing in the future demand for chips/memory.
