The canary in the AI bubble has just died.....
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In the coal mine era, canaries were used to detect dangerous gases early, and their collapse often signaled that greater risks were approaching. Today, the Korean stock market seems to be becoming the “canary” in the ebb of the AI frenzy.
As one of the most crowded markets for the current round of AI trading, Korea’s semiconductor sector has been the first to experience a violent sell-off. On July 28, KOSPI plunged nearly 11% in a single day. SK Hynix, Samsung Electronics, and Japan's memory chip giant Kioxia all fell below key technical support levels. The 3x long Korea ETF, KORU, dropped from a June high of about $64 to around $17, a cumulative decline of more than 70%.
Previously, Korea was one of the biggest beneficiaries of the global AI boom, with assets related to memory chips, HBM, and AI infrastructure becoming focal points for capital inflows. Now, however, these same high-conviction, high-expectation assets are the first to be sold off. The market is worried that this may not just be a correction in the Korean stock market, but an early signal of the AI trade unwinding.
Of particular note, KOSPI had previously outperformed the Philadelphia Semiconductor Index (SOX) during this AI rally, and is now leading the declines. With this “canary” falling, global investors are once again questioning a key issue: Are the high valuations and expectations for AI assets entering a re-pricing phase?
AI Frenzy Recedes: Korea Becomes the First Domino to Fall
Since the high in June, KOSPI has fallen nearly 35%, with the latest wave of selling further intensifying market panic.
During the previous AI infrastructure investment boom, Korean semiconductor companies benefited greatly. SK Hynix became a market favorite due to a surge in demand for high-bandwidth memory (HBM), and Samsung Electronics was also boosted by expectations for AI server industry chain expansion.
But as market risk appetite cools quickly, funds are pulling out. SK Hynix’s share price dropped on high volumes, breaking below the key 100-day moving average maintained since May 2025; Samsung Electronics plunged 14% in a single day, falling below both the 100-day moving average and its long-term trend line.
The concern is that this may not be just a single-market correction, but the beginning of a spread from core assets to peripheral assets in AI industrial chain trading.
Deteriorating Technicals: Market Has Not Seen a True “Capitulation” Yet
From a technical perspective, KOSPI’s correction still has not shown clear signs of ending.
The index has already fallen below the 50-day moving average and is approaching the 200-day moving average and the long-term trend line supporting this rally. Although the RSI has fallen to its lowest level since April 2025, indicating the market is oversold, historical experience shows that oversold doesn't mean an immediate bottom.
A true market bottom is usually accompanied by more intense panic, a surge in trading volume, and a spike in volatility. For now, the KOSPI volatility index’s response is still relatively muted, meaning the market structure may not have fully cleared out yet.
In other words, while prices have clearly corrected, it’s uncertain whether the emotional “final blow” has fully played out.
Leverage Trap: KORU Collapse Reveals AI Trading Risk
Leverage is amplifying the downside in the Korean market.
The 3x long Korea ETF KORU briefly hit about $64 in early June and recently fell to around $17, a drop of over 73%. For investors in these products, the biggest risk isn’t just the index drop, but the long-term drag from the leveraged ETF’s daily rebalancing mechanism.
These products track daily leveraged returns, not long-term cumulative returns. When the market keeps moving down with volatility, compounding constantly erodes net value. Even if the index returns to previous highs, leveraged ETFs may not recover in tandem.
The leveraged money that flooded into the AI trade is now becoming forced selling in the downturn.
Korean “Canary” Warning: The Beginning of Global AI Asset Repricing?
The market’s biggest concern now is whether the crash in Korean semiconductor stocks will spread to global chip assets.
Data shows that KOSPI previously outperformed the Philadelphia Semiconductor Index (SOX), making it one of the most aggressive AI trades. Now, as KOSPI falls back to its current level, SOX is still about 20% higher, indicating a significant divergence. If historical correlations resume, the global semiconductor index may still face catch-up downside pressure.
Of course, the Korean market does not necessarily represent the entire AI industry cycle. The AI capital expenditures of major US tech companies, cloud demand, and advanced chip orders are still the main factors shaping industry fundamentals. But from a capital-flows perspective, Korea is becoming an important window for observing whether the AI trade is overheating.
If the AI boom can still be supported by corporate earnings to digest valuations, then this is merely a healthy correction; but if capital starts to reassess the AI investment payoff cycle, then the dramatic volatility in Korea today may just be the starting point for global AI asset repricing.
The “canary” has fallen. What the market needs to observe next is whether this signals just a local lack of oxygen, or the whole mine losing air.
Risk Warning and DisclaimerThe market carries risks, and investing requires caution. This article does not constitute individual investment advice, nor does it take into account special investment objectives, financial circumstances, or needs of any particular user. Users should consider whether any opinions, viewpoints, or conclusions herein fit their specific situation. Investments made based on this are at your own risk. ```