Korean stocks fall into a bear market; Goldman Sachs advises clients to "shift to China’s AI industry chain."
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Funds that have been betting on the Korean AI market for half a year may be retreating on a large scale.
On July 9, Korea's Seoul Composite Stock Price Index (Kospi) fell 5.4% in a single day, with a cumulative pullback of about 20% from last month’s record high, officially entering a technical bear market. The scene is dramatic. Earlier this year, the Kospi was once the best-performing major stock index in the world, with a year-to-date peak increase of as much as 116%. Now, this increase has fallen back to about 72%.
As Korean stocks crashed, Goldman Sachs’ thematic research team released a report recommending clients shift positions from Korean AI trades to the “China AI value chain.” Yesterday, funds accelerated their exit from Korean chip stocks and turned to Hong Kong tech stocks, with the Hang Seng China Enterprises Index rising as high as 4.5% in a single day, and Alibaba's Hong Kong shares climbing over 13%.
Korean stocks: From global champion to bear market
The Kospi index fell 5.4% on Wednesday in a single day. The leaders of the drop were the two core stocks that previously fueled the index surge—SK Hynix fell 5.7%, Samsung Electronics fell 6.3%.
Ironically, Samsung just announced a quarterly profit surge 19 times higher year-on-year this week, but its share price still plummeted. This indicates that the market’s concern is no longer immediate profitability, but the future: can the AI capital spending boom be sustained?
Fidelity International portfolio manager Ian Samson directly pointed out the issue: “A large amount of volatility stems from fundamental uncertainty. We do see that AI-driven semiconductor demand is real and huge—but it’s actually supported by about $1 trillion in capital spending controlled by only a few large tech companies.” If this spending slows, downside risks will quickly materialize.
Another structural risk in the Korean market is its composition. Bloomberg reported that many retail investors are heavily leveraged in chip stocks through ETF products, which amplify losses when the market reverses. Foreign investors are continuously pulling out—since the start of the year, global funds have cumulatively sold over $100 billion worth of local Korean stocks.
Additionally, media reports say that Chinese domestic chips are on the rise. Previously, there were rumors that Apple was lobbying the US government seeking approval to purchase memory chips from Changxin Memory Technologies.
Where is the money flowing?
The direction of funds says it all.
On Wednesday, the Hang Seng China Enterprises Index rose as much as 4.5%, marking its biggest single-day gain since February 2025. Alibaba Hong Kong shares jumped over 13%, Tencent exceeded 4%. Thus far this month, Hang Seng index series is the best-performing benchmark in Asia, while Kospi is the worst.
Gerald Gan, CEO of Reed Capital, stated: “The performance divergence between China and other global markets is particularly pronounced, creating highly attractive value opportunities for Chinese stocks. The main Chinese tech companies are exactly the targets we are accumulating positions in.”
He also noted that AI-driven rallies in Korea and Taiwan “may be showing signs of fatigue,” and investors are more aware of risks from portfolio concentration. “Rebalancing at this juncture is reasonable.”
Goldman Sachs weighs in: Recommends “China AI value chain”
This fund rotation has already received endorsement from Goldman Sachs.
The firm's research team recently released a report, titled directly: "Trading Idea: Go Long on China AI Value Chain." Analyst Louis Miller wrote: “China AI has officially entered our field of view.”
Goldman Sachs recommends clients buy its self-built “GS China AI Value Chain” basket, covering the entire industry chain including power, semiconductors, AI infrastructure, AI models, and AI applications.
The analyst gives three core rationales:
First, China AI is severely undervalued.
Since the end of 2022, global AI-related stocks have created a total of $34 trillion in market value, with China accounting for very little. Currently, China AI-related market cap is about $4 trillion—analysts believe this number is “clearly undervalued” relative to China’s actual position in the global AI industry.
Data evidence: China accounts for 10% of global AI-related market value, 16% of AI-related revenue, but by January 2026, global mutual fund managers allocate only 1.2% to Chinese tech.
The research also estimates that the potential economic benefits from efficiency gains and new profit creation enabled by AI may be 50%–100% higher than current AI stock prices imply.
Second, China’s structural advantages are underestimated by the market.
Analysts think potential economic gains from AI-enabled efficiency and fresh profits could be 50%–100% higher than implied in current AI stock prices. China is competitive in AI supply chain infrastructure, power, and semiconductors, but this advantage is not yet fully priced in.
Third, China AI is outperforming other Chinese assets, but remains behind US AI, meaning room for further catch-up remains.
Supporting logic: Multiple catalysts in resonance
The bank believes this round of China AI rally is structural, not a short-lived rebound, and listed several specific supports:
Chip exports surge: In May, China's chip sales rose 111% year-on-year, overall exports rose 19.4% year-on-year, the strongest performance in three months, mainly driven by demand for AI hardware.
Index inclusion restructuring: Major Chinese exchanges are adjusting benchmark indexes to include more domestic AI and semiconductor firms, channeling passive funds toward strategic tech sectors.
IPO acceleration: Changxin Memory Technologies has officially been approved to list on the STAR Market, becoming one of the largest IPOs on A-shares this year.
The bank emphasized this is not a KWEB (China Internet ETF) trade, but a structural opportunity covering the entire AI industry chain.
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