EW EWY iShares MSCI South Korea ETF Loading... : Bullish and Bearish Analyst Opinions

Semiconductors (SMH) are testing the critical 50-day moving average and the 570 support level that has defined the uptrend. A breakdown below this level would signal the start of a semiconductor sell cycle. Meanwhile, the KOSPI (South Korean index) has already fallen 30% from highs and is in full distribution mode, acting as a leading warning for AI-related equities.

Korean bank holding companies are the new market leaders because they held up and even rose during the recent crash and circuit-breaker sell-off, showing resilience; global institutional fund managers are rotating into them, and they exhibit strong relative strength.

South Korea's KOSPI index went parabolic and has since suffered a huge tumble. Massive leverage built up via options and levered ETFs; over a million Korean trading accounts reportedly received margin calls on Friday. Even strongly bullish AI news from SK Hynix, ASML, and TSMC failed to lift these stocks, signaling a dangerous momentum break and potential for further unwind.

KOSPI has fallen over 30% from its peak and, historically, a drop of this magnitude without a US recession or global IB failure has always been a buying opportunity. Foreign investors are already accumulating futures and starting to buy cash equities. Selling into further weakness is a mistake; the index is deeply oversold and likely to rebound.

KOSPI is expected to gap down on Monday but likely find a bottom and rebound. The selloff is driven by supply/demand factors rather than fundamental deterioration, and risk/reward now favors upside as the market has fallen sharply and big-tech earnings next week could restore confidence.

Foreign futures positioning is improving, with net selling pressure declining and the 21-day average of foreign futures/options flows shrinking; combined with today's heavy foreign equity buying, this supports a technical rebound in the KOSPI to the 7,800–8,300 range before the downtrend potentially resumes.

Korean stocks have fallen and are now seeing a rebound, but investors should use any rally to exit and rotate into the US market. The US market has a stronger catalyst from Trump's fiscal stimulus, while Korean equities lack such support.

Korean equities are a clear example of the pain already unfolding from the AI CapEx bubble. They are experiencing a dramatic collapse now, and this is what will scale up globally when the broader bubble pops. Korean stocks offer a preview and are vulnerable to further sharp declines.

The Korean equity market (KOSPI) entered a dangerous phase after the macro tailwinds reversed from 'triple low' to 'triple high', draining liquidity that had fueled the rally. Non-semiconductor stocks already formed bear-market double tops. Household and corporate debt refinancing at higher rates, commercial real estate stress, and credit rating downgrades (e.g., Oracle) signal building credit risks. Geopolitical escalation (Iran conflict) could spike oil and the dollar further, threatening emerging-market FX crises. With upside limited and substantial downside risk, raising cash and avoiding KOSPI exposure is the right stance.

The KOSPI has fallen deeper than during the 2022 aggressive rate-hiking cycle, with 89% of KOSPI 200 stocks down over 30% from highs, while the BOK's hawkish hike actually removes uncertainty and the absence of consecutive tightening acts as a resolution of the negative event. Massive ETF inflows into US-listed Korea ETFs (over 2 trillion won) confirm strong foreign buying at these oversold levels. The market is extremely undervalued relative to forward earnings, and a short-term rebound is expected, possibly starting Monday.

Kim Min-seok, former Prime Minister and leading ruling party leadership candidate, argues that reviving the financial investment tax (capital gains tax) is not appropriate now despite the stock market’s sharp rise from 2,000 to 9,000 points. He states that qualitative and structural issues such as market volatility and broader economic stability concerns persist, and that the tax should only be reconsidered after the market has sufficiently stabilized. He pledges to maintain this stance if elected party leader and emphasizes that the government’s policy direction for capital market normalization, stock market activation, and retail investor protection will not waver. This removes a key regulatory overhang for Korean equities while the market still has room to grow, supported by semiconductor demand and ongoing commercial law reforms.

The KOSPI has been closely correlating with the semiconductor index; while the SMH and semis have held the 50-day moving average, a decisive downside break in the KOSPI could signal a broader breakdown in semiconductors. That would challenge the S&P 500's lead sector, making the KOSPI's behavior a critical early signal for equity market direction.

Yu argues the KOSPI selloff is driven by short-term supply/demand distortions – foreign forced rebalancing and leveraged ETF unwinding – rather than systemic or fundamental deterioration. Financial stocks (banks, insurers) are resilient, external conditions are improving (stable won, likely Fed pause, manageable oil), and historical analogues such as the 2018 trade war selloff suggest markets can recover to new highs. He expects KOSPI to return to 8,000–9,000 and potentially reach its prior all-time high later this year or early next.

KOSPI and global chip stocks are seeing extremely poor price action and will likely face more pain next week, as the Korean holiday and leveraged ETF restrictions create illiquid, misplaced reactions, and technicals remain weak.

The KOSPI index has not broken its recent low, indicating support despite heavy selling. The sell-off is primarily driven by abnormal supply from leveraged ETFs and margin calls, which is now unwinding as credit balances shrink and regulatory measures tighten. The market is at a critical inflection point; cash-investors should hold or add, expecting a rebound as supply-demand normalizes and panic recedes.

Korean regulatory announcements on leverage ETFs are unlikely to be game-changing but, combined with a holiday closure and low liquidity, could cause an outsized negative reaction. The KOSPI is closing the week near its lows with poor technicals and the price action in chip stocks remains extremely poor, suggesting more pain next week.

The Korean stock market is still in a multi-year bull market, not a bear market. The current decline is a healthy correction within an ongoing uptrend; the bull run should last at least 3 years in Korea, similar to long US cycles. The index is consolidating, and money is rotating rather than leaving the market.

The correction in Korean AI chip stocks is healthy after a rapid run-up, partly driven by leveraged ETF volatility. Over the medium to longer term, the positive trend driven by AI-related exports remains supportive, and the pullback offers a healthier backdrop for continued upside.

South Korea and Taiwan remain attractive overweight allocations within emerging markets due to their strong exposure to the 'New China' themes of AI, renewables, and memory chips, which will continue to drive long-term growth despite short-term retail volatility.

Despite recent volatility and regulatory concerns over leveraged ETFs, the Korean equity market remains attractive because underlying fundamentals are strong, AI monetization is playing out, and companies are unable to fulfill the massive demand.

The Korean stock market faces structural supply headwinds that will make it difficult to break through previous highs. Foreign investors are forced to sell when memory stocks rise due to weight caps, and pension funds also have limited buying capacity. Although memory fundamentals are healthy, the supply overhang is a persistent obstacle, warranting a cautious stance on KOSPI.