Asia’s AI bubble “showing first cracks”? South Korean stocks give the first warning sign

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The South Korean stock market is emitting early warning signals that the Asian AI investment boom may be nearing its peak. As a key indicator of AI concept stocks, the KOSPI index has seen sharp volatility recently, ending the previous strong upward trend of low volatility.

According to media reports, the KOSPI index has moved in perfect sync with the Global X Artificial Intelligence & Technology ETF (AIQ) since May, but the recent upward momentum has reversed, with successive crashes and large fluctuations. The index has now fallen to the 21-day moving average, with the 50-day moving average still far below.

Technical Warning of the AI Boom in the Korean Stock Market

Technical indicators for the KOSPI index show obvious overheat signals. The weekly and monthly Relative Strength Index (RSI) readings have reached extreme zones, indicating a seriously overbought market.

Since late October, the volatility curve structure has been extremely inverted, reflecting a collective rush by investors for upside exposure. This phenomenon usually signifies excessive market optimism and suggests a risk of correction.

Bank of America previously warned:

"Under our bubble analysis framework, KOSPI is one of the most volatile markets. This does not necessarily mean the market will immediately reverse, but it is certainly an additional warning sign, indicating that market volatility is exceptionally intense and rapid."

The movements of the KOSPI index are highly aligned with US-listed AI concept stocks such as Nvidia (NVDA) and Palantir (PLTR), indicating that global AI investment has become a highly correlated single-trade theme.

Shift of Investment Hotspots in the Korean Market

There was a significant shift in the focus of South Korean investors in September. Previously a major hub for cryptocurrency trading, the country saw a dramatic collapse in crypto trading volume, with funds massively shifting into AI concept stocks.

Data from Upbit exchange shows that crypto trading volume in South Korea has significantly shrunk, and the performance of SK Hynix has notably diverged from Bitcoin since September. Google Trends data shows that Korean users' search interest in SK Hynix has surpassed Bitcoin, reflecting a fundamental shift in investor interest. South Korean investors have begun to chase AI investment opportunities, reallocating funds previously invested in cryptocurrency into semiconductor and AI-related stocks.

The Unique Value of the Korean Stock Market as a Global Economic Barometer

The close attention paid to the Korean stock market stems from its unique position in the global economy. More than 40% of South Korea's GDP comes from exports, covering key sectors such as semiconductors, automobiles, batteries, and displays, making it a direct proxy indicator for the global supply chain and AI capital expenditure.

The Korean stock market exhibits high cyclical sensitivity. When global PMI, trade volume, and semiconductor prices bottom out and recover, the Korean market typically reacts first. International investors view Korea as a "liquidity emerging market beta trade," and when funds are reallocated to Asia or emerging markets, the KOSPI and KOSDAQ often become top choices.

The dominant positions of SK Hynix and Samsung Electronics in HBM and AI memory make the performance of the Korean market a real-time gauge of the actual strength of AI infrastructure construction. This special position makes any abnormal fluctuations in KOSPI globally significant.

Risk Warning and Disclaimer ClauseThe market carries risks. Investments should be made with caution. This article does not constitute personal investment advice, nor does it consider the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, views or conclusions in this article fit their specific circumstances. Investments made accordingly are at your own risk. ```