BlackRock's iShares MSCI South Korea ETF (EWY) saw record outflows on Wednesday, May 6, with $409 million (approximately ₩600 billion) withdrawn, marking its largest single-day capital withdrawal since the fund's listing in 2000. This exodus occurred as the KOSPI index surged 6% to a fresh record of 7,384.56, largely driven by artificial intelligence (AI) related stocks. The ETF, which has roughly $23 billion in total assets under management, has now recorded net outflows for five consecutive trading days, with total redemptions exceeding $900 million over that period, indicating investor profit-taking amid concerns about an overheated market despite significant upward momentum. The KOSPI has skyrocketed approximately 75% this year alone. Analysts like Todd Sohn of Strategas Securities suggest reducing exposure at such extreme market levels, and Ihor Dusaniwsky of S3 Partners noted increased bearish positions from short sellers. This divergence highlights a broader market realignment, with heavy AI assets overshadowing traditional equities.
The AI-fueled rally is primarily attributed to a semiconductor super-cycle, with explosive demand for memory chips, especially high-bandwidth memory (HBM), propelling the earnings and stock prices of Samsung Electronics Co. and SK Hynix Inc. These two companies now account for nearly 47% of the KOSPI's total market capitalization, with Samsung's stock surging 121.85% and SK Hynix's jumping 145.93% year-to-date. The rally has also benefited other sectors within the AI infrastructure ecosystem, including materials, parts, equipment, and power equipment. For example, Hanmi Semiconductor has risen 209% year-to-date, and companies like HD Hyundai Electric, LS Electric, and Hyosung Heavy Industries have also seen sharp gains. Despite the KOSPI's surge, over 600 of the 835 listed stocks fell on Wednesday, indicating that the rally is concentrated in a narrow set of names, and the Korea Volatility Index (VKOSPI) surged 7.52%, reflecting investor anxiety.
Several risk factors could impact the market in the second half of the year, including rising oil prices due to Middle East tensions, which could lead the Bank of Korea to raise its benchmark interest rate. The central bank has already hinted at this possibility, and a rate hike could trigger a correction as funds rotate out of equities into deposits. However, some analysts, such as Lee Kyung-min of Daishin Securities, believe the KOSPI's key variable has shifted from liquidity expansion to an earnings-driven market. Global investment banks and domestic brokerages are revising their year-end KOSPI targets upward, with JPMorgan setting a target of 8,500 and Goldman Sachs Group Inc. and Nomura Holdings Inc. forecasting 8,000. Domestically, Shinhan Securities targets 8,600, Hana Financial Investment targets 8,470, and Samsung Securities sees 8,400.
Adding another layer to the market dynamics, a new "Foreigner Integrated Account" service launched a pilot on April 28, allowing U.S. retail investors to directly buy South Korean stocks. This service, a collaboration between Samsung Securities and Interactive Brokers Group Inc., significantly simplifies the account opening process for foreign investors. In just the first two days of May, net foreign purchases of KOSPI stocks reached approximately ₩7 trillion (about $4.8 billion). Meanwhile, Vanguard Group Inc. is preparing to challenge BlackRock's position in the ex-China emerging market ETF trade by launching its own low-cost fund specifically avoiding China, with an expense ratio of just seven basis points, or 7 cents for every $100 invested.
