South Korean equities fell sharply on Monday as investors took profits in semiconductor stocks following last week’s historic rally, with hedge funds and other leveraged investors reducing exposure after a period of extreme market volatility, according to a report by Bloomberg.
The Kospi Index dropped by as much as 5.5% in early trading, led by heavyweight chipmakers Samsung Electronics and SK Hynix, which each declined around 9%. The losses partially reversed Friday’s extraordinary gains, when the two stocks surged 27% and 30%, respectively.
The retreat comes after a dramatic swing in sentiment that saw the Kospi record its largest-ever single-day gain at the end of last week, driven largely by aggressive foreign buying and widespread short covering. That rebound followed a steep three-day decline of around 17%, fuelled by volatility across AI-related technology stocks.
Market participants said Monday’s weakness reflected a combination of profit-taking and deleveraging after Friday’s surge. A stronger Korean won and renewed attention on China’s progress in artificial intelligence and semiconductor development also weighed on investor sentiment.
Foreign investors, who were major buyers during Friday’s rally, turned into significant sellers on Monday, reportedly offloading more than KRW1 trillion (approximately $700 million) of Korean equities during early trading.
For hedge funds, the rapid reversal highlights the elevated volatility that continues to characterise AI-driven equity markets. While last week’s rally was widely attributed to the unwinding of crowded short positions, Monday’s decline suggests positioning remains fluid and markets could continue to experience sharp swings as leveraged trades are adjusted.
Despite the latest sell-off, some institutional investors remain constructive on the longer-term outlook. Morgan Stanley upgraded South Korean equities to an overweight position, arguing that the recent unwinding of leveraged exchange-traded funds, hedge fund positions and retail margin financing has improved market fundamentals.
The bank believes the reduction in leverage has created a more attractive entry point for investors seeking exposure to the AI investment cycle and the broader industrial technology theme, estimating substantial upside for the Kospi once market conditions stabilise.
