South Korean stock market hijacks Japan? Goldman Sachs warns: "North Asian semiconductor coalition" is amplifying AI trading risks

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The extreme volatility of the South Korean stock market is profoundly reshaping the risk map for technology investors in Japan and around the globe through an invisible chain.

John Joyce, Managing Director and trader at Goldman Sachs, pointed out in the latest internal report that with the explosive growth of single-stock leveraged ETFs for Samsung and SK Hynix, the KOSPI has evolved into a "giant self-reinforcing feedback machine" — accelerating upward when rising, and causing stampedes when falling.

Since 2026, the Korean market has triggered five full-market circuit breakers, while since the circuit breaker mechanism was established in 2000, there have only been eleven total market circuit breaker events; nearly half occurred this year alone.

Meanwhile, the correlation coefficient between the Nikkei and the KOSPI has surged to 0.84, more than double its historical average, effectively merging the two markets into different codes for the same AI hardware capital expenditure trade.

The direct result of this structural coupling is a rare distortion within the Japanese market: the Nikkei/Topix (NT) ratio hit 18 times during trading, while just a year ago this level was considered nearly impossible. For global investors holding Japanese positions, what they purchase is no longer merely the Japan story, but a high-volatility ticket deeply tied to Seoul’s memory cycle.

Japan-Korea Integration: The Birth of the North Asian Semiconductor Consortium

In 2026, the Japanese stock market entered the ranks of the world’s best-performing markets thanks to a breakthrough not achieved for decades—decoupling from the S&P 500. In June this year, the correlation coefficient between the Nikkei and the S&P 500 dropped to 0.26, with R-square at only 6.8%, approaching statistical independence.

However, this independence is not genuine in a true sense. Japan found a new dependency: South Korea’s KOSPI. The correlation between the Nikkei and KOSPI rose to 0.84, over twice the historical average.

John Joyce defines this phenomenon as the birth of the “North Asian Semiconductor Consortium.” Global asset allocators no longer treat Japan and South Korea as separate country markets, but as a unified proxy for the physical AI hardware capital expenditure cycle. On the Tokyo side, Kioxia, Tokyo Electron, and Advantest dominate the index trend; on the Seoul side, Samsung and SK Hynix control KOSPI’s core weighting. The two indexes are, in essence, the same trade.

Leveraged ETFs Ignite, KOSPI Becomes a Hotbed for Stampede

Structural fragility stems not from sentiment, but from the market design itself.

The rapid rise of highly leveraged single-stock ETFs for Samsung and SK Hynix is at the heart of the issue. These products multiply returns in tailwinds, but when the market reverses, forced rebalancing triggers chain selling, pushing volatility to extremes. This mechanism has transformed KOSPI into a self-reinforcing feedback loop.

During the week of June 22nd, the destructive power of this mechanism was fully revealed. According to John Joyce, that week’s market movements clearly showed how different countries and companies rise and fall together due to the same trade, with nearly synchronous linkage between the Japanese and Korean markets.

Since 2000, Korea’s full-market circuit breaker mechanism has triggered eleven times, five of which occurred in 2026. This figure alone speaks volumes about the current fragility of the market structure.

“Two Japans”: The Split Between Nikkei and Topix

The extreme volatility of KOSPI is being transmitted northward, deepening a fissure within Japan.

The Nikkei has become a high-beta proxy for the global semiconductor cycle, while the broader TOPIX index remains anchored to Japan’s domestic interest rate normalization and corporate governance reform. The NT ratio between them has kept expanding this year, reaching a high of 18 times during trading.

Goldman Sachs technical strategist Bashi issued a warning in late April, when the NT ratio was still at 16 times, stating that the resistance level of 15 to 16 times was quietly turning into a new support, and advising investors against shorting this expansion trend. So far, this assessment has been confirmed, with only the speed of expansion exceeding expectations.

John Joyce refers to this as “Two Japans”: one Nikkei that is highly tied to Seoul’s memory cycle and extremely volatile; the other a relatively stable TOPIX, still driven by domestic macro logic.

Fundamentals Remain, but Volatility Is the New Normal

Goldman’s stance is not bearish on this trade, but asks investors to fully understand its price.

From a fundamental perspective, the support remains solid. Earnings forecasts continue to be revised upward, and demand for physical AI infrastructure is real. John Joyce’s conclusion: The trade direction is correct, but the holding process is torturous.

Yet this torment is no longer a temporary aberration, but a new normal. The binding of the Nikkei to Seoul’s memory cycle means more severe drawdowns and quicker rebounds have become intrinsic to this trade.

For investors, the Korean market is now the most concentrated focal point of global AI trading pressure. Goldman notes that most pressure remains localized, but history shows such localization rarely persists for long.

Risk Warning and DisclaimerThe market is risky, and investment should be done cautiously. This article does not constitute personal investment advice and does not take into account individual users’ special investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Invest accordingly, and bear responsibility for yourself. ```