Why the world’s best-performing stock market this year fell into bear territory
Currency dealers watch exchange rates as an electronic screen (top) shows South Korea’s benchmark stock index (KOSPI) in a foreign exchange trading room at Hana Bank headquarters in Seoul on June 23, 2026.
Jade Gao | AFP | Getty Images
South Korea’s stock benchmark, kospiIt has gone from being the hottest stock market in the world to entering bear territory in a matter of weeks, underscoring how investors are cooling off from AI plays and concentration risks.
The Kospi fell more than 5% on Wednesday, LSEG data showed, putting it 20% below its record high on June 19. It closed slightly higher on Thursday in choppy trading.
“The recent decline in South Korea was driven by increasing AI skepticism from global investors and excessive market concentration,” said Manishi Raychaudhuri, CEO of Emmer Capital.
The speed of the comeback brings to light a central feature of this year’s rally: South Korea’s heavy reliance on AI trading. Chipmakers Samsung Electronics and SK Hynix accounted for more than half of Kospi’s weighting as of June, data provided by Emmer Capital showed. This over-dependence both raised and sank the index.
Kospi’s performance since the beginning of the year
“The correction was due to positioning rather than a deterioration in fundamentals,” said Jung In Yun, founder of Fibonacci Asset Management Global. He added that Korean stocks “have become one of the most crowded AI trades globally after a very strong rally, so it doesn’t take much to trigger profit taking.”
Increasing global uncertainty and concerns that earnings growth may moderate have also made investors more cautious; but described the fall in the Kospi as “a healthy reset rather than a fundamental change in the outlook.”
Peter Kim, head of research at KB Securities, argued that the move also reflects a broader shift in the way modern markets behave.
“The gamification of finance has led to these kinds of returns driven by news flows and fads rather than fundamentals,” he said, adding that retail fund flows, leveraged exchange-traded funds and AI-driven concentration are making swings of 5% to 10% increasingly common. Kospi volatility index increased by over 200% since the beginning of the year.
Valuation adjustment
The Kospi has taken a beating lately despite strong earnings from companies at the center of the selloff. Samsung on Tuesday reported a blockbuster profit as memory pricing continues to strengthen. However, the chip giant’s shares lost value due to concerns about artificial intelligence spending.
“The market is questioning the pace of earnings growth rather than the sustainability of AI demand,” Fibonacci’s Jung said. “This distinction is important because it suggests we are seeing a valuation adjustment rather than the end of the AI cycle.”
Underlining strong demand, Futurum Group’s head of semiconductors and infrastructure, Rolf Bulk, said memory prices rose between 50% and 80% sequentially in the second quarter, with further increases expected later this year.
Bulk added that the fundamentals of memory creators remain solid, noting multi-year supply shortages and long-term contracts with hyperscale customers. “The fundamentals and visibility of earnings make the current correction an opportunity for those who can withstand short-term volatility,” said KB Securities’ Kim.
Kospi, which gained over 75% last year, is still up over 70% this year.
“Although volatility may persist in the short term, I believe the medium-term outlook will remain constructive,” Fibonacci’s Jung said. “Once global risk perception stabilizes, foreign investors are likely to revisit Korea given its central role in the global AI supply chain.”
But experts said the timing of a sustained recovery in the South Korean stock market is difficult to predict and will depend in part on broader global market conditions.
SK Hynix’s U.S. listing on Friday could provide a short-term boost for memory stocks, according to Bulk. He added that constructive management commentary on the durability of the memory cycle through the second half of 2026 could help the rise of both chipmakers and Kospi more broadly.
“2Q26 earnings from SK Hynix and Samsung Electronics later this month could be an even more positive factor: constructive comments from both companies regarding the sustainability of the cycle in the second half of 2026 could support stocks and the broader Korean market.”
