South Korean Shares Rebound 6% Amid AI Chip Optimism and Won Weakness

South Korean markets witnessed a dramatic recovery on Friday as the benchmark Kospi surged nearly 6%, driven by high-stakes developments in the semiconductor sector. Despite this late-week rally, the index remains under pressure, marking its second consecutive weekly loss amidst global volatility.

Semiconductor Giants Lead the Recovery

The primary catalyst for Friday's rally was a significant surge in South Korea’s tech heavyweights. Samsung Electronics saw its shares climb over 8% following reports that Anthropic PBC is in discussions with the chipmaker to serve as a manufacturing partner for custom AI chips. This news provided a much-needed boost to investor sentiment, which had been dampened earlier in the week by fears that the global AI-driven market rally might have reached its peak.

Similarly, SK Hynix shares jumped 7%, benefiting from the renewed optimism surrounding AI hardware demand. While LG Energy Solution saw marginal gains, the broader market showed mixed signals; of the 912 issues traded, 406 shares advanced while 471 declined. This volatility highlights the intense sensitivity of the Korean market to global technology trends and AI infrastructure developments.

Foreign Outflows and Currency Pressure

Despite the index gaining 440 points (5.76%) to reach 8,008, the underlying capital flows suggest a cautious stance from international investors. According to Reuters, foreign investors emerged as net sellers, offloading shares worth approximately 1,501.9 billion won.

This capital flight coincided with a weakening Korean won. The currency dropped 0.28% on the onshore settlement platform, trading at 1,544.4 per USD. In offshore and non-deliverable forward trading, the weakness persisted, with the one-month contract quoted at 1,543.2. On a year-to-date basis, the won has depreciated by 6.8% against the US dollar, presenting a challenging backdrop for foreign portfolio investors looking to enter the market.

While Friday was a day of significant gains, the broader weekly picture remains bearish. The Kospi ended the week down 3.84%, a setback in a year that has otherwise been exceptionally bullish, with the index climbing 89.25% since the start of the year.

In the debt markets, there were slight shifts in treasury yields. September futures on three-year treasury bonds gained 0.08 points to 103.11. The yield on the most liquid three-year Korean treasury bond slipped by 1.5 basis points to 3.732%, while the benchmark 10-year yield saw a minor decline of 0.7 basis points to 4.173%. These movements suggest a period of stabilization in the fixed-income segment even as equity markets grapple with tech-sector volatility.

Key Takeaways

  • AI Sector Boost: Samsung Electronics (+8%) and SK Hynix (+7%) led a massive 6% Kospi rally, fueled by potential AI chip manufacturing partnerships with Anthropic PBC.
  • Net Foreign Selling: Despite the price rebound, foreign investors remained net sellers of 1,501.9 billion won, contributing to a 3.84% weekly decline for the index.
  • Currency Volatility: The Korean won continues to face pressure, falling 6.8% against the US dollar so far this year, currently trading around the 1,544 mark.