Foreign investors flee South Korean stocks as AI boom loses steam

South Korean stocks are losing appeal as interest in artificial intelligence-related investments wanes, leading to significant foreign withdrawals and a substantial drop in trading volume. The value of equities in South Korea's $4.3 trillion market has plummeted 70% since late May, while the Kospi index has fallen 22% in the latter half of 2026, as reported by Bloomberg.

This shift comes after a first-half surge that made the Kospi the world's top-performing major equity benchmark, fueled primarily by demand for AI memory chips. Key players Samsung Electronics and SK Hynix, which make up over half of the index, have become a liability as investors question the sustainability of the semiconductor boom.

Foreign investors have pulled out $131 billion from Korean equities this year, the highest outflow among major Asian markets, according to exchange data analyzed by Bloomberg. Doubts about demand were apparent when Samsung shares dropped on Thursday despite the company announcing a nearly ninefold rise in quarterly operating profit.

Corporate share buybacks are also weakening, as Samsung and SK Hynix are set to complete buyback programs totaling 55 trillion won ($41 billion). Retail involvement has similarly declined following a sell-off in July. Outstanding margin loans have dropped to about 33 trillion won from a June high of 38.6 trillion won, and brokerage deposits have fallen to around 100 trillion won from nearly 140 trillion won.

Investors are increasingly turning to Taiwan, where the technology sector provides broader exposure to the AI supply chain. Taiwan's Taiex index has risen 70% this year, outpacing the Kospi by about 23 percentage points in the previous quarter. UBS Global Wealth Management suggested a preference for Taiwanese equities for tactical AI exposure, pointing to the market's diverse technology hardware industry and substantial capital spending by major technology firms.

Despite the decline, South Korea remains one of the stronger-performing markets overall in 2026, buoyed by previous gains and expectations of ongoing AI infrastructure investment.