South Korea’s once-hot AI stocks struggle for buyers as doubts grow over memory-chip boom

South Korea, once a leader in the global AI stocks boom, is now grappling with a sharp decline in investor interest and market relevance. The country's US$4.3 trillion stock market has seen a 70% drop in turnover since the peak in late May, with foreign investors withdrawing at an unprecedented pace. The Kospi, the world's top-performing major equities benchmark in the first half, has since lost 22% to become the worst performer in the second half.

This reversal is largely attributed to the dominant role played by Samsung Electronics and SK Hynix, two memory-chip giants that account for over half of the Kospi's weighting. The concentration of AI fortunes in these two companies has become a liability as investors question the sustainability of the memory chip boom. The brutal leverage-driven sell-off in the summer has further deterred global funds from returning to South Korean stocks.

Phillip Wool, head of portfolio management at Rayliant Global Advisors, noted that the easy money in the memory chip theme has been made, and his fund is now taking profits in South Korean AI stocks, being underweight in SK Hynix and Samsung Electronics. The rapid repurchase of stocks by Samsung and SK Hynix, totaling US$23 billion in September, has also contributed to the market's struggles.

Indeed, the memory chip boom has become a value play, appealing to investors seeking cheap stocks, but not growth-oriented investors. As South Korea grapples with this shift in investor sentiment, Taiwan is emerging as a more attractive alternative, thanks to its wider and deeper linkages across the AI supply chain and a more positive earnings outlook.