South Korea’s AI-supercharged stock market is world’s worst in third quarter

{"text":[[{"start":9.64,"text":"South Korea was the world’s worst-performing stock market in the third quarter following a vicious sell-off in July when one of the year’s most popular AI trades unwound."}],[{"start":18.94,"text":"The benchmark Kospi fell 18.8 per cent in the three months to September 30 due to the sell-off in memory chip stocks at the start of the quarter. Investing in companies such as Samsung Electronics and SK Hynix had become one of the most popular ways to take a bullish view on AI."}],[{"start":35.64,"text":"The second worst-performing major index was China’s benchmark CSI 300, which fell by 12.5 per cent in the quarter. The S&P 500 gained 2.3 per cent."}],[{"start":46.52,"text":"Despite the decline, the Kospi is still up 60 per cent this year, making it one of the world’s top stock markets along with Taiwan."}],[{"start":54.6,"text":"The Korean market had become a proxy for investors’ views on the colossal spending in AI infrastructure, said Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management."}],[{"start":null,"text":"

"}],[{"start":66.08,"text":"The implosion of Leopold Aschenbrenner’s hedge fund Situational Awareness, which had taken outsized leveraged positions in South Korean memory stocks, along with the irrational exuberance of the country’s rabid retail investor base buying leveraged single-stock ETFs, combined to create a sharp unwind in positions in July."}],[{"start":83.68,"text":"Now the prospect of higher global yields is threatening to end a record-breaking run for the Korean stock market, which has risen more than 185 per cent since the start of 2025."}],[{"start":93.32,"text":"“I do think the bond market is going to weigh on equities — it’s a global thing,” said Jongmin Shim, head of Korea research at CLSA."}],[{"start":102.16,"text":"Bhayani of BNP Paribas said valuations in Korea had become more attractive since the July sell-off but there was little chance of another sharp rise in valuations. “We could see reasonable returns but are you going to see 70 per cent? No way,” he said."}],[{"start":114.88,"text":"There has already been a derating in the market. The forward price-to-earnings ratios for SK Hynix and Samsung Electronics, which together make up about half of Korea’s stock market capitalisation, have fallen to a range between four and five."}],[{"start":128.44,"text":"Joshua Crabb, head of Asia-Pacific equities at Robeco, said higher bond yields were a “headwind” for Korean equities but noted that the country’s chipmakers “already trade on low single-digit multiples, so the direct valuation impact should be limited”."}],[{"start":143.9,"text":"Some cast doubt on whether low price-earnings ratios necessarily meant that the chipmakers’ shares were cheap. In an August report, S&P Global Market Intelligence mentioned “concerns around cyclical oversupply risk” that could put pressure on future earnings."}],[{"start":159.28,"text":"At the same time, the Bank of Korea is raising interest rates to keep a lid on inflation in an economy that is showing signs of overheating, with house prices rising along with the stock market. That could act as an additional drag on market returns, said CLSA’s Shim."}],[{"start":175.12,"text":"But Shim was optimistic about the prospects for Korea’s chipmakers, arguing that the spending by US hyperscalers would continue even though borrowing costs had risen sharply just as the companies increasingly relied on debt to fund spending."}],[{"start":188.12,"text":"“There is no choice for the AI companies. They have to spend — it’s do or die,” Shim said."}],[{"start":194.44,"text":"Memory chips are important for AI inference, the process by which models generate responses and perform tasks through chatbots and agents."}],[{"start":201.8,"text":"The market for high-bandwidth memory — a form of vertically stacked DRam memory chips that AI accelerators made by Nvidia depend on — is dominated by Samsung and SK Hynix."}],[{"start":212.64,"text":"Both Korean companies have benefited from insatiable AI-related demand. Prices for conventional DRam and Nand memory have also soared."}],[{"start":225.8,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790742886_9237.mp3"}