Deeply Tied to Nasdaq! South Korean Stock Market Transforms into a "Semiconductor Index," Sparking Investor Concerns

The AI boom has tightly welded the South Korean stock market to Wall Street's tech stocks, but this link is becoming a double-edged sword.

On July 28, data provided by Rayliant showed that the 60-day correlation coefficient between the KOSPI and the Nasdaq 100 Index recently rose to approximately 0.50, the highest level since 2021.

The root of this change lies in the market capitalization expansion of Samsung Electronics and SK Hynix—the two companies combined now account for more than 50% of the KOSPI index weight. They are core nodes in the AI data center hardware supply chain, specifically providing the memory chips required for data centers operated by US tech giants.

Rolf Bulk, an analyst at Futurum Group, told CNBC, "The KOSPI's correlation is rising because it has become a semiconductor index."

South Korean Stock Market: The "Asian Outpost" of the AI Rally

Samsung and SK Hynix are highly dependent on the capital expenditure of the same group of hyperscalers, which also drives the performance of US semiconductor and technology companies.

Bulk pointed out that the proportion of data center demand in global DRAM demand has risen from about 40% last year to over 50% this year, and this share is expected to continue expanding. DRAM (Dynamic Random Access Memory) is a core component of AI servers.

This structure gives Asian investors a unique advantage: capturing early signals of the strength or weakness of global AI trades before Wall Street opens.

Jung In Yun, founder of Fibonacci Asset Management, stated, "Samsung and SK Hynix provide the first liquid market reaction to overnight events affecting global AI demand. SK Hynix, in particular, has become an important bellwether due to its significant exposure to High Bandwidth Memory (HBM), one of the most critical components in the AI supply chain."

Recent market trends confirm this logic. On July 13, dragged down by SK Hynix's single-day plunge of 15% (its largest historical drop), the KOSPI plummeted more than 8%. The Nasdaq 100 subsequently closed down 1.88%. On the same day, Micron Technology fell 4%, SanDisk dropped 12%, and Intel retreated 6%.

Peter Kim, Head of Global Investment Strategy at KB Financial Group, noted that the rise in South Korean memory chip stocks started later than the Nasdaq because US investors initially focused more on the hyperscalers themselves. However, the scale and volatility of the recent rally have prompted global investors to view South Korea as a bellwether for the broader AI trade.

Furthermore, Samsung's earnings previews are typically released about two weeks earlier than those of major US semiconductor companies, making them one of the first concrete signals of AI demand conditions each quarter.

Two-Way Transmission, Not One-Way Leadership

Analysts also caution that the relationship between US and South Korean tech stocks is one of synchronous linkage, rather than one side consistently leading the other.

Phillip Wool, Research Director at Rayliant Global Advisors, stated, "The fortunes of US and South Korean tech stocks are increasingly driven by the same underlying factor: market sentiment towards the AI hardware trade."

When AI-related news breaks during US market holidays, Samsung and SK Hynix can serve as proxy indicators for investor reactions when Wall Street reopens; conversely, when news emerges during US trading hours, the Nasdaq provides a basis for prediction for the next South Korean trading day.

Disappearance of Diversification Value, Rise in Risk Concentration

The rising correlation is eroding the diversification benefits that investors traditionally sought by holding both US and South Korean stocks simultaneously.

Bulk bluntly stated, "South Korea can no longer hedge against the risk of US tech stocks. Half of the index is tied to a single cyclical theme. Once capital expenditure by hyperscale cloud providers slows, the South Korean market will suffer a greater impact than most other markets."

He added that South Korean memory stocks themselves are more volatile than many US chip stocks, and leveraged ETF fund flows further amplify this volatility.

Wool's assessment aligns with this: "When all these markets are essentially driven by the same major risk factor, you find that you have lost the core reason for initially seeking geographically dispersed markets like the US and South Korea—international diversification."

Of course, analysts also pointed out factors that could lead to a divergence in performance between the US and South Korean markets in the future.

Kim stated that while Micron, Samsung, and SK Hynix are currently benefiting jointly from rising DRAM prices, differences in capital expenditure scale, product structure, and US policy support for domestic chip production may ultimately cause their performances to diverge.

The expansion of Chinese memory chip manufacturers is another uncertainty. Kim noted that progress by Chinese manufacturers frequently exceeds investor expectations. Changxin Technology's stock price surged 466% on its first day of listing on the STAR Market of the Shanghai Stock Exchange on Monday, becoming the listed company with the highest market capitalization in China's A-share market.