South Korea’s record-beating stock rally stumbles as risk-off wave hits
Some investors see the pullback as a correction necessary to power the market’s next leg up
[SEOUL] For much of the past year, South Korean stocks stood out as an anomaly, continuing to rise even on days when the global artificial intelligence (AI) boom took a break in other markets. Monday’s (Feb 2) rout is now testing investor confidence.
What started as a modest downturn quickly morphed into a sharp sell-off, with the nation’s equities swept up in the unwinding of crowded trades along with gold and silver.
Uncertainty over interest-rate policy and doubts about the durability of AI-driven spending weighed heavily on technology shares.
The Kospi tumbled as much as 5.6 per cent, the most since November 2025, and a slide in futures triggered a halt in programme trading on the benchmark index.
Samsung Electronics and SK Hynix, the chip heavyweights that engineered the country’s world-beating gains since the start of last year, fell more than 6 per cent each at the day’s lows. The won also weakened.
Unease over Kevin Warsh’s nomination as the next Federal Reserve chair was compounded by Nvidia chief executive officer Jensen Huang’s comments that the proposed US$100 billion investment in OpenAI was “never a commitment”.
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The question is whether the downturn marks a temporary blip in the Kospi’s upward trajectory, or the start of a deeper correction.
“Just last month the market was wrapped in optimism and hope, but its abrupt plunge seems to have sparked a wave of panic selling,” Han Jiyoung, an analyst at Kiwoom Securities, wrote in a note. “Yet the key engines of Korea’s bull market – strong earnings momentum and minimal valuation pressure – remain firmly intact.”
Seoul has been one of the world’s hottest stock markets since last year, thanks to voracious demand for memory chips to work alongside AI processors such as those made by Nvidia.
The South Korean market has climbed to a valuation of more than US$3.3 trillion, overtaking Germany last week to rank as the 10th-largest globally, just behind Taiwan. The Kospi in January surpassed the ambitious goal of 5,000 set by President Lee Jae-myung in a historic milestone.
Domestic and foreign funds were net sellers of South Korean stocks on Monday. Retail investors bought shares, helping to trim the Kospi’s loss for the day back below 4 per cent.
Sentiment was weak across the Asian region, with the MSCI Asia Pacific Index down around 2 per cent, with tech being the biggest drag.
Gary Tan, a portfolio manager at Allspring Global Investments, said the comments by Nvidia’s Huang “likely had a near-term sentiment impact, particularly on AI-exposed names that have rallied strongly year to date”.
“The remarks primarily served as a profit-taking catalyst, as we see some unwinding of crowded trades across the market.”
The won fell as much as 1.3 per cent to 1,459.20 against the US dollar, marking the biggest daily decline since October 2025. The South Korean currency underperformed Asian peers broadly, compounded by foreign selling.
Even with Monday’s pullback, the Kospi remains up 19 per cent for the year, among the world’s best-performing major indices.
Some investors see it as a healthy pullback necessary to power the market’s next leg up, noting that the sell-off was driven by sentiment rather than any material changes to the investment thesis.
“Today’s sell-off in AI names on the Kospi is exactly the kind of move I want to buy into,” said Jung In-yun, chief executive officer at Fibonacci Asset Management Global. “Nothing meaningful has changed in the real world. Orders have not been cut, capex has not disappeared and the structural AI demand story is fully intact.”
South Korea’s two largest stocks – Samsung and SK Hynix – had both been setting fresh records regularly, with their latest earnings showing strong profit gains.
Cameron Chui, an equity strategist at JPMorgan Private Bank, said there could be “technical selling pressure as traders book some profits on the very strong positive share-price movements of memory companies and South Korean equities” in the year to date. BLOOMBERG
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