Goldman Sachs warns: If the weight of Samsung + SK Hynix increases by another 1%, foreign investors will withdraw $2 billion.

The AI boom has propelled South Korea to the top of the world's best-performing stock markets, but also pushed it into a danger zone. Samsung Electronics and SK Hynix together now account for 60% of the Kospi's weight, a historic record. This highly concentrated market structure is creating extreme volatility and triggering comprehensive warnings from regulators, institutional investors, and retail traders.

According to the Wall Street Journal, Goldman Sachs analysts Timothy Moe and John Kwon warned in their latest report that if the combined Kospi weight of the two chip giants rises by another percentage point, foreign investors constrained by the US Investment Company Act’s diversification rules will withdraw about $2 billion from the Korean market. Goldman Sachs also noted that the large influx of leveraged ETF funds, active options trading, and margin financing by retail investors together have formed a structural vulnerability in the market, with daily price swings far exceeding the underlying fundamentals of companies.

The past week's market performance has given a full preview. The Kospi plunged 10% in a single day last Tuesday and fell another 5.8% on Friday, triggering the circuit breaker mechanism five times this year. The head of Korea’s Financial Supervisory Service publicly expressed regret for not preventing the May listing of single-stock leveraged ETFs, saying it may have exacerbated market volatility. As risks from both concentration and leverage accumulate, analysts warn that even a mild market correction may trigger a chain reaction of forced liquidations.

Record Concentration, Kospi Among the Best Performers Globally

The AI investment boom has driven soaring prices for Samsung Electronics and SK Hynix. Samsung Electronics has nearly tripled in value this year, SK Hynix about quadrupled, and both companies have joined the trillion-dollar market cap club in 2024. This surge has nearly doubled the Kospi, making it one of the best-performing markets worldwide this year.

However, behind the rally lies a growing risk of concentration. The combined weight of the two companies has surged from about 40% two years ago to a historic high of 60%. This concentration is exceptional among major markets worldwide: Nvidia and Apple together account for only about 20% of the Nasdaq Index, and Toyota and Kioxia together have less than 10% of the Nikkei Index.

According to Julius Baer data, trading days with daily moves of over 5% in the MSCI Korea Index already make up one-fifth of all days this year, compared to just 0.8% in 2025. Head of Equity Research at Julius Baer, Mathieu Racheter, said: "The latest market movements have sent an important warning about concentration risk. When investors’ positions become crowded, one should expect persistent high volatility."

Goldman Sachs: One Percentage Point Triggers $2 Billion Foreign Outflow

Goldman's analysis highlights a precise risk trigger point. According to the Wall Street Journal, Timothy Moe and John Kwon pointed out that every 1% rise in the combined weight of Samsung Electronics and SK Hynix could force foreign institutions governed by the US Investment Company Act's diversification rules to reduce holdings by about $2 billion.

Goldman Sachs further noted that the combination of massive inflows into leveraged ETFs, increasingly active options trading, and margin financing by retail traders has created a structural environment where daily price swings far exceed what company fundamentals can support. The growth in Korea’s asset management since last year has been mainly driven by investment returns rather than new net capital inflows. As valuations climb, institutional investors’ exposure to market volatility increasingly relies on mechanical hedging strategies, meaning even a moderate market correction could trigger a wave of forced sales.

Morningstar's analysis highlights the rising risk in retail positions. Analyst Jing Jie Yu noted that both the retail holding ratio and margin financing scale for Samsung Electronics and SK Hynix have reached record highs. "This greatly amplifies price volatility—whether up or down, margin calls will force sell-offs," she said.

Morningstar also warned that as stocks become increasingly sensitive to negative news, signals of regulatory tightening can also act as a trigger. Last Friday’s sharp fall occurred right after Apple announced an increase in product prices due to rising memory costs.

Regulators Take Action, But Risks Remain

Korean regulators have introduced a range of measures. The Korea Exchange has activated the 20-minute circuit breaker five times this year, including once each last Tuesday and Friday. The planned launch of weekly options products for four large-cap stocks, including Samsung Electronics and SK Hynix, has been postponed due to excessive market volatility.

Financial Supervisory Service chief Lee Chan-jin publicly expressed regret for not halting the May listing of single-stock leveraged ETFs. "I should have done whatever it took to stop it. I feel deeply regret," said Lee.

Analysts note that until there is a substantial shift in AI investment enthusiasm, the Korean stock market’s heavy reliance on the two chip stocks will continue to pose systemic risks. As Goldman Sachs warned, any major decline in global AI spending could deal a devastating blow to a market dependent on a single investment narrative.

Risk Disclosure and DisclaimerThe market has risks; investment requires caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment objectives, financial circumstances, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their specific circumstances. Investments made accordingly are at your own risk.