A sharp rise of 20% returned to the bull market! Korea's Kospi staged a V-shaped miracle, and the market questioned whether the rebound momentum was close to exhaustion

The Zhitong Finance App notes that the Korea Composite Stock Price Index (Kospi) broke out of the recent round of sharp decline and achieved a reversal. As investors poured back into the South Korean semiconductor giants that dominate the index, the market has returned to a technical bull market pattern.

After last month's sharp decline caused by leveraged positions and forced liquidations pushed it into a bear market zone, the benchmark index has rebounded more than 20% from its July low, hitting the commonly assumed bull market threshold.

The speed of this transformation highlights the huge volatility of technology stocks and raises an even bigger question: How long can this upward trend in the Korean stock market continue?

For bullish watchers, the answer largely depends on whether the fundamentals behind South Korea's semiconductor giants can keep up with increasingly optimistic expectations. Strong earnings reports from US tech giants and continued commitment to spending on artificial intelligence (AI) infrastructure have helped restore market confidence that demand for memory chips will remain strong.

Peter King, head of global investment strategy at KB Securities, said, “During the sell-off period, the rise in the AI concept and continued strong profits continued to exist, so it was the fundamentals that brought the market back to normal, not the other way around.”

Kim said that during the collapse of the semiconductor sector, valuations and profits were never substantially questioned, and the sell-off was mainly driven by technical factors and capital flows. As regulators tighten rules and brokers' return to normal margin and risk requirements, the pressure to close leveraged positions has also eased. This is likely to give the market more solid support than during the upward phase before the crash.

Does concentration present risks or benefits?

The Kospi Index is highly dependent on a few semiconductor companies, making its bull market extremely susceptible to changes in AI market sentiment.

Philip Wool, head of research at Rayliant Global Advisors, said: “At this moment, the Korean stock market has basically become synonymous with AI hardware trading.”

Wool pointed out that as the tide recedes, bottom-scavenger buyers return to the market, and the “fear of missing out” (FOMO) mentality dominates, this rebound is partly a technical repair. However, better-than-expected earnings reports from giants also strengthened expectations for AI infrastructure spending and provided support for South Korean hardware companies to raise growth expectations.

“Any factor that questions this narrative, whether weak capital expenditure guidelines for hyperscale companies, falling token prices, or concerns about the tightening of the Federal Reserve, could trigger a correction. As long as there is uncertainty about the direction of AI hardware spending, volatility is expected to continue.”

Global X ETFs investment strategist Billy Leung pointed out South Korea's corporate governance reforms and “corporate value enhancement” plans. These measures help reduce “Korean discounts,” thereby providing support for bullish arguments.

“Korean discount” refers to the phenomenon where the valuation of Korean companies is lower than that of their global peers for a long time.

“The Kospi Index is already in a bull market, but the more important question is whether this rise was driven by speculation or a substantial improvement in fundamentals,” Leung said.

He believes that compared to the speculative bubble, the Korean market is closer to a bull market supported by fundamentals, and semiconductor profit expectations continue to rise. However, high retail participation, high index concentration, and high market goals are beginning to show the characteristics of the end of the cycle.

Others warned against overinterpreting the 20% milestone.

Yun Jung In of Fibonacci Asset Management Global said, “I would be cautious about describing this as a brand-new bull market.” He pointed out that this rebound is not only a technical repair after a strong draw, but also represents “a real return to stability.”

His basic expectation is that, supported by improved semiconductor profits and risk appetite, the overall bull market trend will continue, but the pace will slow down and become more volatile. “After such a steep rebound, a certain degree of consolidation is healthy, and investors should not expect the market to rise at the same rate in the future.”