- The AI boom has significantly boosted South Korean and Taiwanese memory chip makers, leading to record highs in global EM stock indexes.
- South Korea's KOSPI index doubled in value, while Taiwan's TSMC surged, attracting retail investors who borrowed at record levels.
- Since late June, extreme volatility has hit the markets, with the KOSPI dropping 40% in six weeks and TSMC falling almost 14%.
- International investors exited Asia-ex China share markets at the fastest pace since 2010, with South Korea and Taiwan losing over $100 billion and $44 billion respectively.
- Many retail investors, often using leverage, were wiped out as markets fell, prompting government clampdowns and apologies.
- The AI boom has led to unprecedented profits for semiconductor companies, with Samsung reporting a 250-fold increase in profits in Q2.
- Retail investors in South Korea are borrowing money at record levels, with many hoping to capitalize on the tech boom.
- The introduction of single-stock leveraged ETFs in South Korea has fueled retail trading, allowing investors to amplify their profits or losses.
Emerging markets are facing a harsh reality check as the AI-driven stock boom leads to unprecedented volatility. South Korea's KOSPI index, which had surged, plummeted 40% in six weeks, while Taiwan's TSMC fell nearly 14%.23
Investors are now grappling with the consequences of extreme market fluctuations.
William Bratton, head of cash equity research for APAC at BNP Paribas, noted, "The clients that we speak to... are struggling with the level of volatility in Korea at the moment."
MSCI's research head Ashley Lester remarked, "Emerging markets... are not really a source of diversification anymore; they're right in the center of the AI boom."16
Retail investors in South Korea are borrowing at record levels to invest, raising concerns about forced selling during downturns.
Chung San-Lin, a finance professor at National Taiwan University, warned, "When the market is very hot, many people want to become rich in a very short time."
Samsung Electronics and SK Hynix reported staggering profits, with Samsung's semiconductor profits increasing more than 250-fold in Q2.
JPMorgan reported that South Korea and Taiwan shed over $100 billion and $44 billion respectively as investors cashed in on massive gains.4
Ji Young Park from Amundi stated, "I think in the last month there have been six or seven circuit breakers on the Korean stock market."
As the AI boom continues, the volatility raises questions about the sustainability of these high valuations.
“South Korea's KOSPI doubled before ripping back 40% in six weeks, while TSMC fell nearly 14%, and volatility surpassed COVID peaks. Retail investors, many using leveraged ETFs, saw losses like Choi Eun-chong's $410,000, prompting government clampdowns and an apology from the finance minister.”
