IMF Warns Korea’s AI-Heavy Stock Market Faces Heightened Risks

The International Monetary Fund (IMF) has highlighted the heightened risks to global financial markets due to an over-reliance on artificial intelligence (AI) assets, with a particular focus on South Korea's stock market. In its October 2026 Global Financial Stability Report (GFSR), released on October 13, the IMF cautioned that if AI investment returns fail to meet expectations, forced selling could lead to increased market volatility.

The KOSPI, South Korea's stock exchange, currently shows a sensitivity to AI stocks, measured by beta, at approximately 0.8, which is higher than in the United States, Japan, and the eurozone. In the second half of 2025, the KOSPI fell 34.5%, compared to gains in U.S. and Taiwanese stocks and an 8% decline in Japan's Nikkei index.

AI stocks now make up 28% of leveraged ETF holdings, up from 16% at the end of 2024. The rapid growth of leveraged AI-related investments is considered a significant threat. Sonali Jain-Chandra, deputy director of the IMF's Asia and Pacific Department, noted that while South Korea benefits from AI industry expansion, it is becoming increasingly vulnerable to changes in the industry cycle.

A correction in AI demand could result in weaker exports, reduced investment, and lower government tax revenue. Despite raising South Korea's growth forecast to 3.3% for 2026, the IMF emphasized the need for vigilance against potential risks, including a spike in government bond yields and cyber threats. To mitigate these risks, the IMF recommended sector-specific capital requirements, investment limits, and measures to control excessive borrowing in AI-related sectors, as well as enhancing cyber resilience of financial institutions.