South Korea’s Kospi, Samsung, SK Hynix: meltdown to record rebound

South Korea’s stock market staged its sharpest reversal on record on Friday, capping a month of wild swings that underscored how tightly the country’s equity market has become tied to the global artificial intelligence trade.

The benchmark Kospi surged 14%, on track for its largest one-day jump, data from LSEG showed. SK Hynix similarly saw a record rebound, while Samsung Electronics soared. 

“The Korean stock market has been trading as if it has bipolar disorder, swinging from panic to euphoria almost overnight,” said Jung In Yun of Fibonacci Asset Management. “Today’s move looks like a violent reversal of an extremely crowded selloff.”

The rebound followed a powerful overnight rally in U.S. technology stocks after upbeat earnings from Microsoft, Amazon and Meta reinforced expectations that spending on artificial intelligence infrastructure remains robust. Additional support also came after SK Group Chairman Chey Tae-won disclosed purchases of SK Hynix shares, bolstering confidence in the world’s second-largest memory chipmaker.

Jung said foreign investors appeared to be the main force behind Friday’s rally, while short-covering and mechanical rebalancing by leveraged exchange-traded funds amplified the gains.

New cash-deposit requirements for leveraged ETF investors, which took effect on July 31, may also have contributed to repositioning.

“I would not expect gains of this magnitude to continue,” Jung told CNBC via email. “However, the rebound itself could have further room because positioning had become extremely bearish and SK Hynix’s underlying AI-memory fundamentals remain strong.”

He added, “the real test will be whether foreign buying continues after today’s short-covering fades. If it does, this could develop into a more durable recovery.”

The dramatic rebound comes just days after Korean equities suffered one of their worst selloffs as concerns over stretched AI valuations, rising leverage and signs of forced liquidations rippled through global semiconductor stocks. 

Rolf Bulk, semiconductor analyst at Futurum Group, said the latest rally reflects improving confidence that the AI investment cycle remains intact rather than a wholesale shift in fundamentals.

“We’ve seen unprecedented volatility in the Korean stock market over the last month, culminating in this recovery on the final trading day,” Bulk said.

Bulk added that recent forced selling appears to have largely run its course. “There are no signs of the AI infrastructure build-out slowing down, and we remain positive on the sustainability of the cycle.”

Not everyone is convinced Friday’s rebound signals the end of the turbulence.

Paul Gambles, co-founder of MBMG Family Office Group, warned that the sharp rally could simply be another violent move within an increasingly unstable market.

“I think we’re going to get a lot more days like this,” Gambles said. “Asset prices are completely disconnected. It’s telling us that there’s a massive amount of leverage out there.”

He warned that while Friday could prove to be “a one-day relief rally or it could be something that lasts a little bit longer,” investors should not mistake it for evidence that risks surrounding the AI boom have disappeared. 

Gambles highlighted that the combination of heavy leverage and fragile investor confidence could leave markets vulnerable to a much larger correction.

“We’re not saying that this is it, but we’re saying this is a sign that if this isn’t it, it is coming down the track at some point, not too distant,” Gambles said.

For now, investors are watching whether overseas funds continue buying after short-covering subsides. That may determine whether Friday marks the start of a more durable recovery or simply another dramatic swing for what has become one of the world’s most volatile equity markets.