Concerns over inflated AI valuations and leveraged bets have shaken the confidence of investors in South Korea, leading to a brutal sell-off in the last week of July. Seoul's stock market lost as much as $2.18 trillion, with the benchmark index falling nearly 40% below its June peak. Lawmakers pressured South Korea’s Finance Minister Koo Yun-cheol regarding single-stock leveraged ETFs, which some analysts blame for increasing leveraged trading.
Despite the sharp correction in AI-related equities in South Korea, global fund flows show little evidence of panic selling. According to Sunil Jain, an analyst at Elara Capital, semiconductor fund inflows actually accelerated during the week, suggesting continued investor conviction in the AI theme. Peter Kim, senior managing director at KB Securities, believes the sell-off is a liquidity and sentiment-driven event, exacerbated by the forced unwinding of single-stock leveraged ETFs across various markets, rather than a fundamental deterioration.
South Korea's tech-heavy Kospi had more than doubled earlier this year but faced intense selling pressure in late July due to worries over lofty AI valuations. Trading on the Kospi was halted multiple times due to circuit-breaker mechanisms. However, the Kospi partially rebounded on July 31, surging over 10% after strong earnings from U.S. technology giants like Microsoft, Amazon, and Meta. Notably, South Korea attracted $1.3 billion in foreign inflows in July, while Taiwan saw $4.8 billion in domestic fund inflows.
