South Korean Stocks Lose Foreign Investors as AI Boom Slows

South Korean equities are facing heavy foreign selling as fading enthusiasm for artificial intelligence investments reduces demand, with the $4.3 trillion market experiencing a sharp decline in activity and the Kospi weakening after its strong first-half performance.

Trading turnover in South Korea's equity market has dropped 70% from its late-May peak, while the benchmark Kospi has declined 22% in the second half of 2026, according to Bloomberg.

The market reversal followed a first-half rally that made the Kospi the world's best-performing major equity benchmark, driven largely by demand for AI memory chips. Samsung Electronics and SK Hynix, which together represent more than half of the index's weighting, have become a key concern for investors questioning the semiconductor boom's durability.

Foreign investors have pulled $131 billion from Korean equities this year, the largest outflow among major Asian markets, according to exchange data compiled by Bloomberg.

Investor caution was highlighted when Samsung Electronics shares fell despite the company reporting nearly a ninefold increase in quarterly operating profit. Market support from corporate buybacks is also weakening as Samsung Electronics and SK Hynix approach completion of combined repurchase programs worth 55 trillion won ($41 billion).

Retail participation has also declined following July's selloff. Outstanding margin loans have fallen to about 33 trillion won from a June peak of 38.6 trillion won, while brokerage deposits dropped to around 100 trillion won from nearly 140 trillion won.

Investors have increasingly shifted attention toward Taiwan, where the technology sector provides broader exposure to the AI supply chain. Taiwan's Taiex has gained 70% this year, outperforming the Kospi by about 23 percentage points in the last quarter.

UBS Global Wealth Management said it prefers Taiwan equities for tactical AI exposure, citing the market's diversified technology hardware ecosystem and strong capital spending by major technology companies.

Despite the recent decline, South Korea remains among the stronger-performing markets of 2026, supported by earlier gains and expectations of continued AI infrastructure investment.