South Korea's stock market in a 'rollercoaster' amid AI investment concerns

South Korea's stock market has endured a turbulent three months, marked by sharp declines in major tech stocks. Investors who bought shares of Samsung Electronics and SK Hynix after April have largely incurred losses, with some stocks falling over 50% from their peaks. Despite a late surge, the KOSPI index dropped more than 22% in July, a monthly decline comparable to past financial crises.

While economic indicators like export performance and inflation remain relatively stable, the market's downturn is primarily attributed to supply-side issues. Foreign investors, largely institutional, have been net sellers of approximately 160 trillion won this year. Their selling is driven by long-term asset allocation strategies, prioritizing portfolio rebalancing over short-term performance.

However, supply-side factors alone do not fully explain the market's performance. Underlying concerns about the future of AI infrastructure investment and the speed of the AI revolution have significantly impacted investor sentiment. Hyper-scalers like Google, Microsoft, and Amazon are increasingly relying on external funding, such as bonds, to finance their massive AI data center investments, signaling a need to quickly demonstrate returns.

The rise of China's AI industry and the potential for its semiconductor companies to gain market share have also fueled anxieties. This has reduced upward pressure on semiconductor prices and cast doubt on the future profitability of semiconductor firms. The strategic selling by foreign investors, therefore, appears to have served as a warning on the pace and appropriateness of AI investment, leading to a correction in semiconductor stock valuations.