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South Korea's Kospi has staged a reversal from its latest rout, returning to bull-market territory as investors pile back into the country's semiconductor giants that dominate the index.
The benchmark has climbed more than 20% from its July low, the commonly used threshold for a bull market, after a rout driven partly by leveraged positions and forced selling pushed it into bear-market territory last month.
The speed of the turnaround underscores the massive volatility in tech stocks and raises a bigger question: How much longer will the South Korean rally last?
For bulls, the answer rests largely on whether the fundamentals behind Korea's semiconductor giants can keep pace with increasingly optimistic expectations. Strong U.S. technology earnings and continued commitments to AI infrastructure spending have helped revive confidence that demand for memory chips will remain robust.
"The AI rally and continued strong earnings have been a constant during the sell-off, so it is fundamentals returning the market back to normalcy rather than the other way around," said Peter Kim, head of global investment strategy at KB Securities.
Kim said valuations and earnings were never seriously in doubt during the semiconductor rout, which was instead driven by technical factors and fund flows. The unwinding of leveraged positions has also eased after regulators tightened rules and brokerages normalized margin and risk requirements. That could leave the market on firmer footing than during the run-up preceding the crash.
The Kospi's dependence on just a handful of semiconductor companies makes its bull run overly exposed to shifts in sentiment toward AI.
"Korea's equity market is basically synonymous with the AI hardware trade at this point," said Phillip Wool, head of research at Rayliant Global Advisors.
The rebound has been partly technical, Wool said, as forced selling subsided, dip buyers returned and fear of missing out took hold. But stronger-than-expected Big Tech earnings have also reinforced expectations for AI infrastructure spending and helped underpin upward revisions to growth forecasts for Korean hardware companies.
"Anything that calls this narrative into question, whether it's soft guidance on capex from hyperscalers, sagging token pricing, Fed tightening fears, we can expect to see a pullback," Wool said. "Expect continued volatility as long as there's uncertainty about how AI hardware spending will play out."
Supporting the bull case, Billy Leung, investment strategist at Global X ETFs pointed to Korea's corporate-governance reforms and "Value-Up" program, which have helped reduce the "Korea discount."
The "Korea discount" refers to the longstanding tendency of South Korean companies to trade at lower valuations than comparable global peers.
"The KOSPI is in a bull market, but the more important question is whether the rally is being driven by speculation or by a genuine improvement in fundamentals," Leung said.
He sees Korea as closer to a fundamentally supported bull market than a speculative bubble, with semiconductor earnings' expectations continuing to rise. But elevated retail participation, heavy index concentration and ambitious market targets…