South Korea

South Korea’s stock market experienced a record intraday reversal, highlighting its strong correlation with the global AI sector. Following a surge driven by US tech rallies and positive AI outlook, the Kospi index saw a significant rebound, with SK Hynix and Samsung Electronics leading the gains. While some see this as a sign of sustained AI demand and a reversal of oversold positions, others caution that it may be a temporary relief rally in an increasingly volatile and leveraged market. The persistence of foreign investment will be key to determining the market’s future direction.

South Korea’s finance minister apologized for significant retail investor losses following the introduction of single-stock leveraged ETFs. These products, initially popular, have caused substantial paper losses due to sharp market corrections, particularly in the semiconductor sector. Regulators are considering restricting access to these leveraged products to professional investors and potentially lowering leverage multiples to enhance investor protection.

The burgeoning interdependence of Wall Street’s tech sector and South Korea’s equity markets is driven by AI spending. South Korea’s Kospi and the U.S. Nasdaq 100 show a strong correlation, primarily due to memory chip manufacturers like Samsung and SK Hynix being critical in the AI hardware supply chain. This synchronization offers early insights into global AI trends but reduces diversification benefits for investors.

Nvidia has secured a $500 billion deal with South Korea’s SK Hynix for a critical supply of AI memory, ensuring components for its processors and AI systems. This partnership also initiates large-scale data center construction by 2027 and includes SK Telecom developing a cloud business with Nvidia’s systems. Nvidia is also investing $1 billion in Korean cloud company Naver, bolstering AI infrastructure development beyond hyperscale providers.

South Korea’s booming tech sector is awarding exceptionally large bonuses, prompting the Bank of Korea to voice concerns about potential inflationary pressures. While traditionally viewed as one-off payments, the unprecedented scale of these bonuses could stimulate consumer spending, particularly in luxury goods, and potentially lead to broader wage growth, impacting both supply and demand-side inflation. The central bank is closely monitoring this trend.

Goldman Sachs strategist Tim Urbanowicz advises investors to look beyond domestic markets for substantial AI gains, highlighting emerging economies like Taiwan and South Korea. These nations are critical to the global AI supply chain, particularly in chip manufacturing, and their valuations haven’t yet matched U.S. growth. ETFs tracking these markets show significant year-to-date surges, presenting considerable room for outsized returns in AI-driven investments.

Nvidia CEO Jensen Huang’s South Korean visit generated significant public enthusiasm, mirroring K-pop star reception. Beyond celebrity, the trip held strategic importance for Nvidia, aimed at strengthening ties amidst geopolitical supply chain issues and regulatory scrutiny. South Korea is a crucial hub for Nvidia’s growth. The visit also highlighted potential business collaborations with Korean tech giants, despite mixed stock market performance for related companies.

South Korea is addressing AI’s economic impact, focusing on wealth distribution and labor relations. Deputy Prime Minister Bae Kyung-hoon highlighted concerns about inequality and job losses driven by AI. Labor disputes, like at Samsung Electronics, underscore worker demands for a share of AI-generated profits. The government aims for an “AI-inclusive society” as stock markets rally, propelled by chipmakers, signaling a need for wise dialogue to navigate these complex challenges.

SK Telecom launched A.X K1, South Korea’s first 519 billion parameter AI model, aiming to rank among global AI leaders. This “Teacher Model” can transfer knowledge to smaller AIs, democratizing advanced AI. SK Telecom plans to offer A.X K1 via its A. service for widespread public access, fostering an AI ecosystem from semiconductors to services. The consortium aims to open-source the model to boost national AI competitiveness.