South Korea was the hottest ticket in the global AI trade until the momentum broke and investors discovered just how crowded the party had become. The Kospi has surrendered 22% since its first-half peak, turnover has collapsed, foreign capital is heading for the exits and even extraordinary earnings from Samsung are struggling to attract buyers. Bloomberg's Charlotte Yang captures a market where the memory-chip boom remains very real, but the speculative money that drove Korean equities into the stratosphere has lost its appetite. Meanwhile, Taiwan is making a convincing case for becoming Asia's preferred AI destination.

Takeaways by Dark Side of the Boom™

• Korea’s spectacular AI rally has given way to a 22% second-half Kospi decline, with trading turnover collapsing 70% and foreign investors withdrawing $131 billion this year.

• Samsung and SK Hynix continue delivering exceptional profits, but their combined dominance of the index has turned Korea’s greatest strength into a concentration risk.

• The approaching completion of $41 billion in semiconductor buybacks removes a crucial source of market demand just as retail investors and foreign funds remain reluctant to return.

• Taiwan is winning the regional AI allocation battle, offering broader semiconductor exposure, healthier market participation and stronger relative momentum.

The question: Has Korea finally become cheap enough to attract patient capital, or will the memory-chip giants have to wait for the speculative crowd to find its appetite again?

The Market That Went From Hero to Zero

There is a particular brutality to the way markets treat yesterday’s favourite trade once the momentum disappears, and South Korea is getting a proper lesson in it. For much of the first half, the Kospi could seemingly do no wrong. AI enthusiasm, soaring memory-chip profits and an army of leveraged retail investors turned Korea into the hottest equity market on the planet. Foreign capital poured into the same handful of semiconductor heavyweights, local investors borrowed aggressively to join the party, and the index doubled as the global AI boom found its most enthusiastic expression in Seoul.

Six months later, the atmosphere could hardly be more different.

Bloomberg Markets Live strategist Charlotte Yang documents a reversal that goes well beyond an ordinary correction. Turnover in Korea’s $4.3 trillion equity market has collapsed 70% from its late-May peak, foreign investors have been withdrawing capital at the fastest pace among major Asian markets, and the local retail crowd that helped propel the rally has become conspicuously quiet. Having led the world’s major equity benchmarks in the first half, the Kospi has fallen 22% in the second, making it the worst performer over that period while AI-heavy markets in Taiwan and the United States continue reaching new highs.

That is some reversal of fortune, especially when the underlying technology cycle has hardly collapsed.

The problem is that Korea’s AI trade was never particularly broad. Samsung Electronics and SK Hynix account for more than half the Kospi’s weight, leaving the index extraordinarily sensitive to the memory-chip cycle and the willingness of investors to keep paying up for it. When those two names were moving higher, Korea looked unstoppable. Once doubts emerged about how long the memory boom could last, there was precious little elsewhere in the index capable of absorbing the selling.

The summer’s leverage-driven liquidation made matters considerably worse. The forced selling damaged portfolios, shattered confidence and left international investors questioning whether they wanted to revisit a market where the exit had already proved so narrow.

Rayliant Global Advisors’ Phillip Wool has a straightforward explanation: the easy money in Korea’s memory-chip trade has already been made. His fund has been taking profits and is now underweight both Samsung and SK Hynix, which tells you something about how institutional investors are approaching a sector that continues to deliver impressive earnings but has lost its ability to surprise.

Foreign investors have withdrawn $131 billion from Korean equities this year, the largest outflow among major Asian markets, according to Bloomberg’s compilation of exchange data. The most revealing moment came Thursday, when Samsung shares fell despite reporting an almost ninefold increase in quarterly operating profit. In a healthy momentum market, numbers like that would have traders falling over themselves to get involved. In Seoul, they could barely keep the stock afloat.

The other complication is that one of the market’s most dependable buyers is about to step aside. Samsung and SK Hynix are approaching completion of combined share repurchase programmes worth 55 trillion won, or roughly $41 billion. JPMorgan estimates that buybacks by the two companies accounted for the bulk of the $23 billion in market buy orders last month. Remove that demand while foreign funds are already heading back toward American equities, and Korea faces an uncomfortable question about who is going to provide the next meaningful bid.

As Julius Baer’s Richard Tang observes, global capital has increasingly been gravitating back toward the US. Korea is discovering that spectacular corporate profits are not always sufficient to retain investors once relative performance and liquidity begin deteriorating.

The domestic retail crowd is not rushing to fill the gap either. Individual investors were instrumental in driving the Kospi’s 100% first-half advance, but July’s collapse inflicted the sort of damage that tends to linger long after prices have stabilised. Margin loans outstanding have fallen from a June peak of 38.6 trillion won to roughly 33 trillion won, while cash sitting in brokerage accounts has slipped from nearly 140 trillion won to around 100 trillion won. That is a substantial withdrawal of speculative firepower from a market that had become heavily dependent on precisely that kind of participation.

And this is where the investment case gets rather awkward. Pictet Asset Management’s Jon Withaar argues that the Korean memory-chip makers are beginning to look like value stocks, cheap relative to their current earnings. He has a point, but anyone who has spent time trading momentum-driven Asian markets knows that cheap does not necessarily mean attractive to the investors who drove the original rally. Retail traders and fast-money hedge funds are looking for earnings acceleration and rising share prices, not an opportunity to sit patiently through the next semiconductor inventory cycle.

There is certainly a case for looking at Korea again. AI infrastructure spending remains formidable, memory-chip profitability has not evaporated, and the government’s corporate value-up initiative could continue encouraging improvements in shareholder returns. Even after the second-half damage, the Kospi remains among the stronger performers for 2026 as a whole. The market has given back an extraordinary amount of speculative excess, but that does not automatically mean the earnings cycle has finished.

The trouble for Korea is that international investors have another way to own the Asian AI story, and Taiwan is increasingly winning that argument.

The Taiex has risen 70% this year and outperformed the Kospi by approximately 23 percentage points last quarter, its widest relative advantage since the turn of the century. More importantly, Taiwan’s rally extends beyond a couple of dominant memory-chip manufacturers. Roughly 10% of Taiex constituents have at least doubled this year, compared with just 4.7% of Kospi members. That is a meaningful difference in market participation, particularly when investors are becoming increasingly sensitive to concentration risk.

Taiwan also offers exposure to a much broader section of the AI hardware supply chain, from semiconductor fabrication and advanced packaging to the equipment, components and infrastructure surrounding the hyperscaler investment cycle. Investors looking for AI exposure can spread their bets across more of the production chain rather than relying so heavily on the fortunes of memory pricing.

That explains why UBS Global Wealth Management’s Chun-Lai Wu currently favours Taiwan for tactical AI exposure, citing its more complete technology hardware ecosystem and the strength of investment spending plans among major technology companies.

The distinction matters because the AI boom has entered a stage where the market is becoming much more selective about how it rewards earnings growth. Korea has already delivered an extraordinary semiconductor profit cycle, but the share prices have paid a heavy price for the liquidation of leveraged positions and the retreat of foreign capital. Taiwan, by comparison, continues attracting investors who want broader participation in the infrastructure buildout.

For traders, I would be watching Korean turnover and foreign flows as closely as the next round of memory-chip earnings. The fundamentals may eventually make Korea too cheap to ignore, particularly if semiconductor profitability remains resilient, but a sustainable recovery will require genuine buying interest to replace the demand disappearing with the completion of those enormous buyback programmes.

And that is the difficulty with trying to catch a market after a speculative boom has broken. Valuations can look appealing long before investors recover the confidence to commit capital, especially when another market is offering a similar investment theme without the same scars from the previous liquidation.

Korea may still have some of the best companies in the AI memory trade, but Taiwan currently has something equally valuable: investors who still want to own the story.