South Korea’s stock market staged an extraordinary rebound on Friday, with the benchmark Kospi surging as much as 14% in its sharpest reversal on record, after a month of extreme volatility linked to artificial intelligence valuations, semiconductor stocks, leverage and global technology markets.
The rally came after a strong overnight advance in US technology shares, where upbeat earnings from Microsoft, Amazon and Meta strengthened expectations that spending on artificial intelligence infrastructure remains robust. The move was further supported by news that SK Group Chairman Chey Tae-won had disclosed purchases of SK Hynix shares.
Kospi stages historic one-day reversal
The Kospi was on track for its largest one-day percentage gain, jumping 14%, according to LSEG data. The index’s rebound came only days after Korean equities suffered one of their most severe selloffs, highlighting the extraordinary swings that have recently defined the market.
SK Hynix recorded a record rebound, while Samsung Electronics also surged. The sharp recovery reflected renewed investor confidence in major Korean semiconductor companies and the broader AI investment cycle.
Jung In Yun of Fibonacci Asset Management described the market’s behaviour as unusually extreme, with equities moving rapidly between panic and optimism. He characterised Friday’s rally as a powerful reversal after an exceptionally crowded selloff.
US tech earnings help lift Korean shares
The latest rally followed gains in US technology stocks after Microsoft, Amazon and Meta reported upbeat earnings. Their results reinforced expectations that demand for infrastructure supporting artificial intelligence remains strong.
That optimism was particularly significant for South Korea because its major semiconductor companies are closely connected to the global AI investment cycle. SK Hynix, in particular, has benefited from strong underlying fundamentals linked to AI memory demand, according to market analysts cited in the report.
Additional support came from SK Group Chairman Chey Tae-won’s disclosure of purchases of SK Hynix shares. The development helped strengthen sentiment around the company, which is described as the world’s second-largest memory chipmaker.
Foreign investors seen as key force behind rally
Jung said foreign investors appeared to be the primary driving force behind Friday’s gains. Short-covering and mechanical rebalancing by leveraged exchange-traded funds also helped amplify the move.
New cash-deposit requirements for investors in leveraged ETFs, which took effect on July 31, may have contributed to changes in market positioning as traders adjusted their exposure.
However, Jung cautioned that a one-day gain of this magnitude should not be treated as a normal market move. He said the rebound could have further room because investor positioning had become extremely bearish, while SK Hynix’s underlying AI-memory fundamentals remained strong.
Analysts divided over whether recovery can last
The central question for investors is whether Friday’s rally represents the beginning of a sustained recovery or another sharp move within an unstable market.
Jung said the next major test would be whether foreign investors continue buying after the effects of short-covering fade. Continued overseas buying, he indicated, could provide evidence that the recovery has a stronger foundation.
Rolf Bulk, a semiconductor analyst at Futurum Group, also pointed to the importance of the AI investment cycle. He said the latest rebound reflected improving confidence that AI spending remains intact rather than a fundamental change in the market’s underlying outlook.
Bulk described the past month as an unprecedented period of volatility for Korean equities. In his assessment, recent forced selling appeared to have largely run its course, while there were no signs that the AI infrastructure build-out was slowing.
He therefore remained positive about the sustainability of the broader AI investment cycle.
Leverage remains a major market risk
Not all analysts believe the latest rebound means the turbulence is over. Paul Gambles, co-founder of MBMG Family Office Group, warned that the dramatic rally could be another extreme move in an increasingly unstable market.
“I think we’re going to get a lot more days like this. Asset prices are completely disconnected.”
Gambles argued that the scale of the swings points to a significant amount of leverage in the market. In his view, the combination of high leverage and fragile investor confidence could leave equities exposed to another substantial correction.
He said Friday’s advance could ultimately prove to be either a short-lived relief rally or a move that lasts longer. However, he cautioned investors against interpreting the rebound as proof that the risks surrounding the AI boom have disappeared.
AI valuation fears triggered the earlier selloff
The dramatic recovery followed a sharp decline in Korean equities earlier in the week. Concerns about stretched valuations in AI-related companies, increasing leverage and signs of forced liquidation had spread through global semiconductor markets.
The selloff demonstrated how closely South Korea’s equity market has become connected to the worldwide AI trade. Semiconductor companies are central to that relationship, making Korean shares particularly sensitive to changes in expectations surrounding AI infrastructure investment.
The latest rally, meanwhile, suggests that investors are reassessing whether the recent decline had gone too far. The strength of the rebound also reflects how quickly market positioning can change when sentiment shifts.
What investors will watch next
For now, the durability of the recovery is likely to depend heavily on what happens after the immediate effects of short-covering and technical repositioning fade.
Investors will be watching whether overseas funds maintain their buying interest and whether confidence in the AI infrastructure cycle continues to support semiconductor shares. The performance of SK Hynix and Samsung Electronics will remain particularly important for gauging broader sentiment toward Korean technology stocks.
The contrasting views from market participants underline the uncertainty. While some see strong AI fundamentals and exhausted forced selling supporting further gains, others warn that leverage and unstable positioning could produce more extreme swings.
South Korea market faces another test after record rebound
Friday’s historic rally has offered relief after the recent selloff, but it has not eliminated the questions surrounding valuations, leverage and the sustainability of the AI-driven investment boom.
Whether the Kospi’s dramatic recovery develops into a more durable rebound or becomes another chapter in a month of exceptional volatility will depend largely on foreign investor demand, semiconductor fundamentals and the continued strength of global AI spending.
Source: CNBC
