Korea was a showcase of the AI trade earlier this year, with the Kospi topping major benchmarks in the first half. Since then, the index has fallen 22%, leaving it at the bottom of the pack in the second half while AI-heavy peers in Taiwan and the US keep printing highs.
The air has also come out of activity. Trading turnover has collapsed about 70% from its late May peak. Overseas investors are exiting faster than anywhere else in Asia, with $131 billion withdrawn from Korean stocks this year, the largest outflow among major Asian markets.
So much of Korea's AI story rides on two names - Samsung Electronics Co. and SK Hynix Inc. That concentration worked on the way up, but it is now a risk as investors debate how long the memory-chip upcycle can last. A leverage-fueled summer slump has also made some global funds think twice about returning.
"The biggest challenge I see for most investors - especially those who only recently got into Korea for the memory chip trade - is that the easy money in that theme has been made," said Phillip Wool of Rayliant Global Advisors, who leads portfolio management, adding that his fund has been trimming Korean AI exposure and is currently underweight SK Hynix and Samsung Electronics.
Since the July rout, retail participants have largely stepped back after powering the Kospi to a 100% gain in the first half. According to the Korea Financial Investment Association, margin debt has hovered around 33 trillion won in recent weeks, down from a June high of 38.6 trillion won. Brokerage cash balances - money parked and waiting to be put to work - have dropped to around 100 trillion won from nearly 140 trillion won.
They chase growth." "We have seen capital increasingly gravitate back toward US equities, contributing to ongoing foreign outflows from the Korean market," said Richard Tang, head of research for Hong Kong at Julius Baer.
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Samsung shares declined on Thursday even after the company reported a near nine-fold jump in quarterly operating profit. Buyers are proving hard to find, a challenge compounded by Samsung and SK Hynix nearing completion of buyback programs totaling 55 trillion won ($41 billion). Those buybacks made up most of last month's roughly $23 billion in market buy orders, according to JPMorgan Chase & Co.
There is a silver lining: some investors see the pullback as a chance to add, betting AI spend and memory-chip profitability will hold up, and pointing to Korea's ongoing effort to lift corporate value. Thanks to earlier gains, the Kospi is still among 2026's better performers overall.
But patience is wearing thin for others. Taiwan is winning fans as a broader, more connected AI supply-chain hub with a brighter earnings backdrop. Taiwan's rally is also wider: about 10% of its index members have at least doubled this year, versus 4.7% for the Kospi.
"At this point in time, we prefer to express our tactical AI exposure through Taiwan equities, which offer a more complete technology hardware ecosystem and are supported by robust spending plans from major technology companies," said Chun-Lai Wu, head of Asia Asset Allocation at UBS Global Wealth Management Chief Investment Office.
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