South Korean Stock Market in the Super Storage Cycle: Carnival and Bubble
After continuously hitting new highs, the frenzy in the South Korean stock market was interrupted.
On June 5th, Asian stock markets declined collectively, with a deep correction in the artificial intelligence sector, and the South Korean stock market hit the circuit breaker. As of the close, the Korea Composite Stock Price Index (KOSPI) dropped 5.54%. SK Hynix fell 9.92%. The Korea Exchange triggered the circuit - breaker mechanism due to a 5% decline in the KOSPI 200 futures, and program trading was suspended for 5 minutes.
Sharp rises or falls to the circuit - breaker have become the norm in the South Korean stock market. On May 27th, the opening gain of the KOSPI index widened to 5%, hitting a new all - time high and triggering the circuit breaker. On May 15th, after briefly touching 8000 points, the KOSPI index took a sharp turn downward. In the afternoon, the decline was once close to 5%, and Samsung Electronics and SK Hynix fell nearly 10%, also triggering the circuit breaker.
Since 2026, the KOSPI index has performed extremely well, far exceeding other major global stock indices such as the Nasdaq. In less than half a year since the beginning of the year, the KOSPI has risen by more than 93%; in the one - year period from June 2025 to the present, it has risen by more than 200%.
However, behind the upward trend, volatility has also been rising simultaneously. Data released by the Korea Exchange (KRX) on June 3rd showed that the total number of buyer and seller sidecar (temporary trading halt) instructions triggered in the main board market this year has reached the highest level since the global financial crisis in 2008, only 6 less than the 26 times in the whole year of 2008. When the fluctuation range of the KOSPI 200 futures index reaches or exceeds 5% and lasts for at least 1 minute, this instruction will be triggered, and program trading will be suspended for 5 minutes.
Many market participants are not surprised by the sharp fluctuations in the South Korean market. A securities industry practitioner said, "The market has concerns about the rapid rise. The KOSPI index has doubled in the first five months of 2026, and a certain degree of correction is normal."
Regarding this sharp valuation divergence, Chen Ge, the co - head of the Global Investment Banking Department of UBS Securities, provided a speculative analysis framework to Caijing. Chen Ge believes that taking the storage industry as an example, if it is regarded as a cyclical stock, the current price - to - earnings ratio of 6 or 7 times may be close to the top of the cycle; but if it is regarded as a structural trend, this valuation level is obviously low.
"This is not a judgment that can be easily made, but it reflects the high attention of global investors and enterprises to this trend. More and more enterprises are actively thinking about how to establish a connection with artificial intelligence. Even traditional industries such as consumer and medical are exploring the application of AI. Artificial intelligence is profoundly changing the entire economic structure." Chen Ge told Caijing.
1
The South Korean Stock Market Dominated by the "Two Semiconductor Giants"
The narrative that the two semiconductor giants dominate the South Korean stock market is not groundless.
On May 27th, the super storage cycle led by AI witnessed a historic moment in the capital market: the stock price of SK Hynix soared 9%, and its market value exceeded the $1 trillion mark, becoming the third Asian company with a market value exceeding $1 trillion. Previously, Samsung Electronics had already joined the trillion - dollar club. Just on May 26th in the U.S. stock market, the stock price of Micron Technology, a storage chip giant, rose more than 19% in a single day, and its market value exceeded $1 trillion for the first time. The two storage giants were crowned members of the trillion - dollar market - value club within about 9.5 hours.
Since the global DRAM storage chip market is monopolized by the three giants of Samsung, SK Hynix, and Micron, the market expects the shortage of storage chips to last until 2027. This supply rigidity gives the three major manufacturers extraordinary pricing power when facing the world's largest technology companies. Investors and analysts generally expect that this will give them unprecedented bargaining power.
This pricing power is reflected in the index structure of the South Korean stock market. Observing the performance of KOSPI constituent stocks, it can be found that the industry differentiation phenomenon is extremely serious.
As of June 5th, the year - to - date gains of the two chip giants, Samsung Electronics and SK Hynix, reached 180% and 230% respectively, and their market values both exceeded $1 trillion. They were the main driving forces behind the sharp rise in the South Korean stock market, contributing most of the KOSPI's gains. The total market value of the South Korean stock market exceeded $5 trillion, surpassing India to become the sixth - largest market in the world by market value. Therefore, once there are any fluctuations in the chip market, the South Korean stock index will fluctuate sharply.
However, after excluding these two stocks, the performance of individual stocks in the South Korean stock market is not outstanding. As of the end of May, there were 835 companies trading on the KOSPI. In the great bull market of 2026, only 373 stocks rose, less than half. More than 800 stocks other than the two chip giants contributed less than 30% to the index increase. This "K - shaped differentiation" pattern means that the prosperity of the South Korean stock market highly depends on the performance of the two semiconductor giants.
The historic performance of the two companies in the first quarter provides fundamental support for this dependence. SK Hynix's net profit in the first quarter reached 40.33 trillion won, far exceeding analysts' expectations of 29.39 trillion won. In the first quarter, the average selling price of DRAM increased by about 60% compared with the fourth quarter of last year, and the average selling price of NAND (Negative - AND flash memory) increased by about 70% during the same period. Samsung Electronics achieved revenue of 133.9 trillion won in the first quarter, a year - on - year increase of 69%. The revenue of the semiconductor division accounted for more than 50% of the total revenue for the first time. The overall operating profit reached 57.2 trillion won, a quarter - on - quarter increase of 184.6% and a year - on - year increase of 756%.
The strong fundamentals have led to a unique phenomenon of "the more it rises, the cheaper it gets" for Samsung and SK Hynix. The forward price - to - earnings ratios of Hynix and Samsung remain at around 6 times, significantly lower than the more than ten - times level of similar U.S. technology companies. The root cause of this phenomenon is that the speed of upward revision of profit forecasts continues to exceed the increase in stock prices. Analysts have significantly revised up their earnings - per - share forecasts, and the dynamic valuation has actually been compressed. Recently, SK Securities in South Korea first used the PE valuation method to cover the two storage giants and raised the target price to nearly double. The core logic is that the current PE is still at a historical low, which is seriously inconsistent with the profit elasticity of the super storage cycle.
Wang Yi, the investment director of CSOP Asset Management, told Caijing, "Overall, the three core logics supporting the continuous upward movement of South Korean stocks - the super cycle of storage semiconductors, the continuous upward revision of corporate earnings, and the government - led reform of the South Korean discount - have not changed substantially. For Hynix and Samsung, based on the current fundamental trajectory, the judgment of 'the more it rises, the cheaper it gets' is still valid with the valuation repair and the improvement of the South Korean discount."
Liu Gang, an analyst at CICC who just participated in Samsung Securities' 2026 Global Investor Strategy Conference, provided a more comprehensive view of the sentiment in the South Korean market. He believes that although most South Korean investors think the fundamentals of South Korean stocks are still strong, and the optimistic sentiment stems from the strategic opportunities brought by the AI industry trend and the global industrial chain reconstruction, there are still a few cautious investors who are worried about the over - valuation and over - heated sentiment of the South Korean stock market. There are also a very small number of investors who point out that cyclical storage stocks should be sold at a low valuation (5 - 6 times PE) and are looking for rotation opportunities.
2
Leveraged Products Exacerbate Volatility
On the same day when SK Hynix reached a market value of $1 trillion, another major innovation in the South Korean financial market was launched, which in turn may exacerbate the volatility risk that the above - mentioned cautious investors are worried about.
On May 27th, 16 2 - times leveraged and inverse ETFs based on Samsung Electronics and SK Hynix were officially listed on the South Korean stock market. They were issued by eight asset management companies such as Samsung Asset Management and Mirae Asset, with a total planned listing scale of about 4.32 trillion won (about $2.88 billion).
In terms of the operation mechanism, all leveraged products adopt a synthetic simulation strategy and a daily reset 2 - times leverage operation mode. Before deducting fees, the product aims to achieve a 2 - times amplification of the daily return of the underlying asset. If the underlying asset rises 1% in a single day, the ETF theoretically rises 2%. However, this mechanism is a double - edged sword, and losses will also be amplified in a falling market.
The listing of these products marks a major policy shift by the South Korean Financial Supervisory Service. South Korea previously prohibited the trading of individual - stock leveraged ETFs for a long time due to the requirement of diversified investment, stipulating that the investment limit for a single underlying asset was 30% and the index must consist of more than 10 constituent stocks. It was not until April 28th that South Korea officially revised the relevant rules, allowing the issuance of individual - stock leveraged ETFs with domestic leading individual stocks as the underlying assets, and raising the investment position limit for a single individual stock to 100%. The core driving force behind this change is the large - scale outflow of South Korean investors. The leveraged ETFs listed in Hong Kong, China, tracking Samsung Electronics and SK Hynix, have attracted a large amount of capital inflow this year. The regulatory authorities aim to bring this part of trading activities back to the domestic market.
However, leveraged products are becoming an important amplifier of market volatility. Since the combined market value of Samsung Electronics and SK Hynix accounts for nearly half of the KOSPI index, leveraged products need to mechanically adjust their positions daily to maintain the target exposure. This process has nothing to do with the company's fundamentals but will directly amplify market volatility. Barclays estimates that during the sell - off on May 15th, position - adjustment trading accounted for 17% of SK Hynix's trading volume. UBS Group said that in the last hour of trading on March 3rd when the stock price fell more than 10%, position - adjustment accounted for 60% of SK Hynix's trading volume. Data from the Korea Exchange shows that in the first five trading days after the listing on May 27th, the four most active single - stock leveraged ETFs accounted for 21% of the total trading volume of all ETFs in South Korea.
Jung In Yun, the CEO of Fibonacci Asset Management Global in Singapore, warned, "These ETFs will exacerbate the existing problem: concentration risk. This poses a structural problem for long - term investors because the volatility of the index will remain at a high level."
Facing potential risks, the South Korean regulatory authorities took intensive investor - protection measures before the product listing, issuing investment guidelines twice and emphasizing that the 30% limit on the daily rise and fall of individual stocks under the leverage effect will be amplified to a maximum loss of 60%. The word "ETF" is prohibited from being used in the product name. Investors must meet the basic margin of 10 million won and complete a two - hour investment education course. As of the eve of the listing, more than 130,000 investors had completed the mandatory education course.
It is worth noting that before the listing of South Korean domestic products, the relevant products in the Hong Kong, China, market have shown strong capital - attracting ability. Data shows that as of May 7th, the asset management scale of CSOP's SK Hynix 2 - times daily leveraged product reached HK$42.123 billion, ranking first in the global individual - stock leveraged and inverse product scale. As of June 5th, the scale of CSOP's 2 - times long SK Hynix product reached HK$80 billion.
Regarding the competition brought by South Korean domestic leveraged products, Wang Yi believes, "South Korean leveraged products are not a competitive threat but an expansion of the market ecosystem. CSOP's SK Hynix leveraged product has a solid first - mover advantage. In addition, the investor groups in the two places are complementary, which will increase the liquidity of the underlying stocks in the long run and enhance global attention to South Korean AI semiconductors."
3
The AI Bubble Theory Resurfaces
Facing the crazy rise of the South Korean stock market and the new variables brought by leveraged products, the attitudes of major global financial institutions have shown obvious differentiation. The optimists and the cautious have presented their arguments respectively.
In the optimistic camp, Goldman Sachs has just raised the target point of the South Korean stock market from 9000 points to 12000 points. Analysts such as Timothy Moe, the chief equity strategist for the Asia - Pacific region and co - head of macro research at Goldman Sachs, said, "We are more optimistic about North Asia, where the profit growth is the strongest." But they also admitted that the rise of artificial - intelligence chip - manufacturer stocks may continue, and the risk of correction is rising.
In contrast to Goldman Sachs' cautious optimism, Citigroup issued a more direct warning. Citigroup believes that the valuation level of the South Korean stock market is already at a high level among major global markets. Coupled with the rising institutional risk of labor - management relations, the long - term allocation willingness of foreign capital may be frustrated, and the current rise is more driven by short - term sentiment.
Brice the global chief investment officer of Standard Chartered Bank also holds a similar view. He warned that the risk of correction in the South Korean stock market will rise in the next few weeks, and has downgraded the semiconductor sector from "overweight" to "neutral", pointing out that going long on the South Korean stock market has become a highly crowded trade, and a short - term adjustment is completely reasonable.
From the perspective of global capital flows, the repeated record - highs of the Japanese and South Korean stock markets have also triggered discussions about the "circum - China effect". Hu Zhizhi, the president of UBS Group in China, believes that the global capital is currently in a stage of re - layout. The so - called "circum - China effect" is essentially a dynamic adjustment process. "China has been continuously promoting the implementation of artificial - intelligence applications for many years. Coupled with geopolitical factors, long - term capital generally faces a re - evaluation of its investment portfolio. As China's regulatory framework becomes clearer, the underlying logic of investing in China remains solid, and the capital will eventually return to China."
In addition, some industry insiders believe that although the KOSPI valuation is still reasonable compared with the U.S. stock index, it is relatively expensive compared with the historical performance of the South Korean stock market itself.
So, is there a bubble in the AI industry? When will the bubble burst? Ray Dalio, the founder of Bridgewater Associates, recently gave a judgment with historical depth in an interview. Dalio said, "All major technological changes will give rise to bubbles. No one can accurately time it. You either invest a huge amount of money to seize market share regardless of over - investment, or you lose market share due to insufficient investment. When it is necessary to convert investment into capital for realization, the bubble will burst. The process of pricking the bubble is the process of converting wealth into currency. The current AI - driven market is developing along this trajectory, even though it is an excellent technology."
In response to this debate about the bubble, Wang Yi said, "At present, AI represents the largest capital - flow direction in the market, and the overall industry is in a stage of strong infrastructure expansion. At present, most of the increase is driven by performance, and it is hard to say it is a bubble. When the supply of chip manufacturers increases or the investment demand for AI infrastructure decreases, the market will definitely give feedback. At present, high - end chips are difficult to expand immediately due to the long equipment cycle, and the demand for AI infrastructure construction is still strong. Strictly speaking, AI has not created a completely new industry or disrupted any traditional industry, so the overall technological change is still in its early stage, and the bubble theory is hard to hold. It can only be said that there may be a risk of over - investment at present."