South Korea’s wild ride

South Korea’s stock market just delivered a plot twist worthy of a K-drama.

The Kospi plunged 8% yesterday, marking its ninth-worst trading day in the past 45 years, before rebounding 8.18% today, as investors rushed back into the market.

Much of the rally has been fueled by retail investors, many of whom are amplifying their bets with borrowed money. Retail investors have poured an estimated $70 billion into Korean equities this year, while leveraged positions climbed to a record $39 billion in May.

At the center of the frenzy are South Korea’s AI darlings: Samsung Electronics and SK Hynix. Both companies recently surpassed market capitalizations of $1 trillion, and together account for roughly half the Kospi index. New ETFs offering concentrated exposure to the pair have only pushed more money into the same two names.

The bull case

Wild swings are hardly new for South Korea’s stock market. Earlier this year, the Kospi experienced its largest one-day reversal on record, falling 12% on March 4 before rebounding 9% the following session. The market has been here before—during the Asian Financial Crisis in 1997, the dot-com crash, the Global Financial Crisis, and the Covid pandemic.

Some investors worry that today’s volatility resembles the early stages of previous market crises, especially given how heavily the market depends on just a handful of companies. But many analysts argue the latest pullback looks more like a positioning adjustment: As Korean stocks surged, global fund managers were forced to cut positions to keep allocations within risk guidelines.

At the same time, many on Wall Street still see more room to run. Earlier this month, Goldman Sachs lifted its Kospi target to 12,000 and maintained an overweight rating. The bank also boosted its earnings growth forecasts for both 2026 and 2027, arguing that demand for AI memory chips continues to outpace supply.

But that outlook is tenuous: Samsung and SK Hynix are deeply tied to the same AI spending cycle that has powered US tech stocks higher. If enthusiasm around AI begins to fade, or if US tech shares stumble, South Korea’s market could feel the impact quickly. Also on watch: whether the Bank of Korea hikes rates as the won continues to slide against the dollar.

For now, though, it’s just another day in Busan.—SY