South Korea’s sharp equity correction is testing hedge funds that have been among the biggest beneficiaries of the AI-driven rally in semiconductor stocks.

The Kospi index has fallen more than 20% from its June peak, officially entering bear market territory after steep declines in Samsung Electronics and SK Hynix, the market’s two largest constituents.

The sell-off has raised fresh questions over the sustainability of the AI trade that has powered strong returns for technology-focused hedge funds with significant exposure to memory-chip makers and related semiconductor names.

Investor sentiment has weakened amid uncertainty over whether South Korea’s leading chipmakers can secure long-term supply agreements similar to those adopted by US peers, including Micron.

While the correction has triggered a reassessment of positioning, many investors view the pullback as a healthy reset rather than a fundamental break in the long-term case for AI-related semiconductors.