South Korea's stock market is showing signs of stagnation as trading volumes have dropped to their lowest level this year, suggesting that the artificial intelligence-driven rally may be losing momentum. The country's benchmark Kospi index saw daily trading turnover fall to 20.6 trillion won ($15 billion) in September, the lowest figure since 2026 and less than half the peak levels recorded during May and June.
The earlier surge was fueled by retail investors piling into AI-related stocks, which pushed the market to historic highs. However, growing skepticism about the actual returns from AI investments triggered a sharp 22% correction in the Kospi in July. While the index has since recovered some ground, it has struggled to maintain levels above the critical 7,000-point threshold.
According to Jason Minsang Kam, head of active equity management at Kyobo Life Insurance Co., overseas investors are unlikely to return until volatility subsides and concerns about the chip cycle are resolved. He anticipates the Kospi will remain range-bound for the foreseeable future.
Despite the significant pullback, the Kospi has still gained approximately 59% year-to-date, making it one of the best-performing major benchmark indices globally. Beyond the AI boom, corporate share buybacks have also provided support to the index.
However, the Korean market continues to face substantial headwinds. The Bank of Korea raised its benchmark interest rate by 25 basis points to 3% in late August, and market surveys suggest another similar hike could follow in the fourth quarter. Additionally, potential rate increases by the U.S. Federal Reserve could further pressure growth stocks.
Kang Songchul, an analyst at Eugene Investment & Securities, noted that market dynamism is fading. As domestic interest rates climb, capital has shifted toward rate-linked savings products, making equities comparatively less attractive to investors.
In a notable development, the Korean stock exchange officially extended trading hours to 8 p.m. on September 14. This extension allows investors who cannot trade during daytime hours to buy and sell stocks in the evening session, while also enabling overseas market changes and major news to be reflected in stock prices more promptly. The move aligns with the global trend of major exchanges extending their trading hours and aims to enhance Korea's competitiveness by making it easier for international investors to participate.
This change makes Korea the first major Asia-Pacific economy to offer such extensive evening trading. However, concerns have been raised regarding liquidity and price volatility during the night session. Liquidity during evening hours is significantly lower than regular trading hours, which could result in reduced trading volumes, wider bid-ask spreads, and more pronounced price fluctuations. Moreover, institutional investors equipped with advanced trading systems, algorithmic tools, and superior information processing capabilities may gain a distinct advantage over retail investors in the relatively thin evening market.
Over the longer term, Jerry Chen, senior analyst at GAIN Capital, believes extended trading hours will facilitate smoother participation by international investors and improve liquidity and efficiency. Young Jae Lee, senior portfolio manager at Pictet Asset Management in London, added that more trading-oriented investors with higher turnover, such as hedge funds, may engage more frequently in after-hours trading.
However, some industry observers caution that trading activity ultimately depends on market structure and regulations themselves. Extending trading hours does not create liquidity but merely redistributes it. For the Korean stock market, the outlook hinges on the sustainability of AI semiconductor earnings against the backdrop of structural market vulnerabilities.
On the positive side, the earnings narrative driven by the AI semiconductor supercycle remains compelling. Samsung Electronics and SK Hynix maintain dominant positions in the AI memory chip sector, particularly in HBM technology, serving as the strongest pillars of the Korean market. Record supply shortages in memory chips have fueled substantial upward revisions in corporate earnings forecasts, with Goldman Sachs projecting a 300% growth in Korean corporate earnings by 2026. Furthermore, despite the sharp index gains, valuations in the Korean market remain historically low, which appears reasonable given broad earnings improvements.
On the other hand, the market's performance in July and August exposed significant risks beyond extreme volatility and leverage-driven stampedes. The Korean market suffers from severe structural imbalance. Samsung Electronics and SK Hynix together account for approximately 50% of the Kospi's total market capitalization and an even higher 72% of earnings weight. Such extreme concentration means that if global capital reassesses the AI trade, the Korean market would have virtually no buffer, amplifying downside movements considerably.
Additionally, single-stock leveraged ETFs introduced near the market peak have inflicted heavy losses on many young retail investors, with 62% of liquidated account holders under the age of 35. Some analysts suggest that even if the AI fundamentals remain intact, investors may choose to avoid the Korean market due to concerns about market regulations and stability.