Throughout much of the year, South Korea held a prominent position in the worldwide artificial intelligence trade. Trading volumes and participation rates within the $4.3 trillion equity market have trended downward on a broad range of measures.
Trading volume has dropped by 70% from its late-May peak, with overseas investors withdrawing at a rate that outpaces any other market in the region, while domestic retail participants have also reduced their activity. After leading all major equity benchmarks through the first six months of the year with a gain that placed it at the top of global rankings, South Korea's Kospi has shed 22% since then, dropping to the bottom of that same table as technology-weighted indices in Taiwan and the United States pushed to record levels.
Samsung Electronics and SK Hynix together account for a large portion of global memory-chip production — the segment that underpins AI hardware — and that concentrated position across the two companies is a key factor behind the shift now playing out in the market. Combined, the two chipmakers hold more than half of the Kospi's total index weighting and were behind the index's gains in the earlier part of this year.
Phillip Wool, head of portfolio management at Rayliant Global Advisors, described the concentrated exposure as a growing liability, noting that investor confidence in the memory chip cycle's staying power had weakened and that a debt-driven selloff over the summer had left a number of global funds reluctant to re-enter the market. Wool backed that view with action, trimming his fund's positions in Korean AI stocks and moving to an underweight stance on both SK Hynix and Samsung Electronics. He also observed that investors who entered Korea primarily to capture the memory chip trade had, by his assessment, already seen the most accessible returns from that theme.
Exchange data showed that overseas investors offloaded a net $131 billion worth of Korean equities over the course of the year, a withdrawal that outpaced any other major Asian market tracked in the figures. Samsung shares retreated even as the company's quarterly operating profit climbed nearly ninefold, reflecting investor uncertainty about the durability of demand for memory chips.
Investor appetite for Korean equities has become harder to sustain, a condition tied in part to the approaching conclusion of combined share repurchase programmes worth 55 trillion won ($41 billion) at Samsung and SK Hynix. Data from JPMorgan Chase and Co. showed that buyback activity at the two chipmakers drove the majority of the $23 billion in purchase orders recorded across the market the previous month. Julius Baer's Hong Kong research head Richard Tang noted that investment flows had been shifting back toward US equities, a trend he linked to continued outflows from Korean markets.
Retail investors, whose buying activity had helped propel the Kospi to double its value across the first half of the year, have largely stepped back from the market since the sell-off in July. Korea Financial Investment Association figures show that margin loans have held at roughly 33 trillion won through the past month, pulling back from a 38.6 trillion won peak recorded in June.
Brokerage account balances — encompassing investor deposits held in reserve ahead of deployment — have retreated to roughly 100 trillion won, down from a peak of nearly 140 trillion won. Jon Withaar, a portfolio manager at Pictet Asset Management in Singapore, noted that memory chip names had taken on the characteristics of value stocks trading at modest multiples relative to earnings, though retail participants and short-horizon hedge funds tend not to pursue value-oriented positioning or assets simply because they appear inexpensive on that basis.
Price pullbacks in the sector have drawn attention from investors who view AI-related expenditure and memory chip earnings as remaining on solid footing. A programme aimed at lifting corporate valuations in Korea adds to the country's appeal for investors.
Heading into the year's final stretch, the Kospi index holds a position near the top of global performers for 2024, underpinned by the ground it gained earlier in the year. Taiwan's semiconductor sector, positioned as a rival hub across Asia, has drawn increased attention from investors who point to its broader integration throughout the artificial intelligence supply chain and a comparatively stronger earnings trajectory.
The Taiex Index, having climbed roughly 70% across the year, pulled ahead of the Kospi by around 23 percentage points in the most recent quarter — a gap that had not been recorded since the early 2000s. Taiwan's equity index showed broader participation in this year's gains, with roughly one in ten constituent stocks having at least doubled in price — more than twice the proportion recorded for the Kospi. Chun-Lai Wu, who heads Asia Asset Allocation at UBS Global Wealth Management's Chief Investment Office, noted that the firm had positioned its near-term artificial intelligence exposure through Taiwanese equities, citing the market's technology hardware supply chain and the scale of capital spending commitments from large technology companies.
