South Korean stocks posted a record-breaking rally on Friday, rebounding from a sharp selloff earlier this week as major technology firms' spending plans revived confidence in AI-related trading. The Kospi index closed nearly 18% higher, marking its biggest single-day gain on record.
Shares of SK Hynix soared 30%, hitting the daily limit, after SK Group Chairman Chey Tae-won made a rare direct purchase of the stock. Samsung Electronics ended the session up nearly 27%. The rally was fueled by multiple positive catalysts, including regulatory support in South Korea and overseas optimism regarding AI infrastructure development. A rally in U.S. tech stocks on Thursday also set the stage for the market recovery.
Other Asian tech stocks also advanced, with Taiwan's benchmark Weighted Index climbing about 8%. "Today's action looks like a relief rally, but it is supported by improving fundamentals, not just bargain hunting," said Jung In Yun, CEO of Fibonacci Asset Management Global. "Given the extreme volatility, we see this as an early recovery signal."
The Kospi had fallen 17% over the previous three sessions due to concerns about rising debt levels among the world's largest tech companies and threats from Chinese competitors. Despite strong earnings reports from Samsung and SK Hynix earlier this week, excessive positions built through leverage were liquidated, exacerbating the selloff. South Korean regulators this week tightened measures on more than a dozen leveraged ETFs tracking Samsung and SK Hynix to curb volatility amplified by rebalancing trades.
"The deleveraging in China and South Korea is squeezing out speculative bubbles, allowing the market to reflect its true conditions," said Hebe Chen, senior market analyst at Vantage Global Prime. "Strong earnings show that despite heightened volatility, the market still has solid fundamental support, even if tighter liquidity means the sharp gains seen earlier this year may be hard to replicate."
Foreign investors were the main buyers in Seoul, posting a record net purchase of 7.8 trillion won (about $5.4 billion) of Kospi stocks. Retail investors were again net sellers, offloading a record 8 trillion won in shares. A sharp rebound in U.S. tech stocks on Thursday, driven by spending outlooks from companies like Microsoft, boosted enthusiasm for tech hardware stocks. After the close, Amazon released earnings that further lifted sentiment, as its cloud computing revenue beat analyst estimates, with strong demand for AI services accelerating sales for the fifth consecutive quarter.
AI stocks have tumbled in recent weeks. After suffering losses, hedge fund Situational Awareness began unwinding some of its stock positions, and Ken Griffin's Citadel took over most of the fund's holdings, leading investors to believe the selloff may be nearing its end. Situational Awareness previously held shares of Asian companies including SK Hynix. (Related reading: Situational Awareness hedge fund assets shrink to $10 billion after Citadel's intervention.)
Chey Tae-won bought 3,620 shares of SK Hynix in the open market, valued at about 4.8 billion won based on Thursday's closing price. This marks his first personal direct investment in the chipmaker. After SK Hynix's sharp share price drop, the market widely interpreted this as a vote of confidence in the company's long-term growth prospects.
Requirements to increase deposit amounts for leveraged ETF products also took effect on Friday, boosting hopes that extreme market volatility may ease. Meanwhile, the South Korean government said it plans to invest about $13.9 billion into its sovereign wealth fund for strategic AI investments. "The recent accelerated selloff in AI tech stocks, driven by deleveraging, position reduction, forced liquidation, and other liquidity factors, appears to be stabilizing," said Shawn Oh, head of Korean cash equities at NH Investment & Securities.