South Korea’s stock market, a prominent beneficiary of this year’s global AI trade, is losing momentum. Trading has fallen 70% from its late-May peak in a market valued at about $4.3 trillion, while foreign investors are pulling out faster than in any other Asian market and local retail investors are scaling back. The retreat in both activity and participation points to waning demand for AI-linked stocks.
Kospi falls behind in the second half
The Kospi was among the world’s best-performing major indexes in the first half of the year. Since the start of the second half, however, it has fallen 22%, making it the worst-performing major index over that period. By contrast, benchmark indexes in Taiwan and the United States, both with significant exposure to AI stocks, have reached record highs.
The diverging performance shows that the AI theme has not lifted markets uniformly. South Korean equities had benefited from global investor appetite for AI-related assets, but the index’s decline and shrinking turnover now point to reduced market participation. Foreign outflows alongside a pullback by local retail investors offer two indicators of that shift in demand.
Foreign and retail participation weaken
Foreign investors are leaving South Korea at the fastest pace in Asia, while local retail investors are also reducing their activity. The available information does not specify the amount of net foreign outflows, the scale of retail trading or the individual stocks involved. It is therefore not possible to determine which companies or sectors are seeing the largest withdrawals, or how much each factor has contributed to the fall in turnover.
Still, the 70% decline in trading from the late-May peak coincides with the Kospi’s 22% drop in the second half, showing that both market activity and index performance have weakened. The fading AI trade in South Korea stands in contrast to record highs for relevant benchmarks in Taiwan and the United States.