Korean tech shares take sharp tumble

Korea’s technology stocks have suffered a sharp correction in recent months, with the FTSE Korea index falling nearly 30% from its year-to-date peak as of July 31, according to FTSE Russell.

The mid-year sell-off was largely driven by crowded positioning, daily rebalancing of single-stock leveraged ETFs, and retail deleveraging, rather than weakening underlying fundamentals.

Market Volatility

The correction also led to a notable increase in volatility, with the volatility of the tech-hardware-heavy Korea and Taiwan equities being particularly high among APAC, according to the report.

However, FTSE Russell notes that despite the volatility, Korea’s semiconductor sector remains supported by powerful structural demand from AI, while valuations remain relatively undemanding.

The firm’s quarterly APAC financial markets spotlight notes that the correction was not due to a weakening fundamental outlook for memory chip markets, nor did it reflect expensive valuations.

Semiconductor Sector

Korea has long been the global leader in memory semiconductors, and the emergence of AI has created additional sources of structural demand for memory, according to the report.

In particular, high bandwidth memory (HBM) has become a critical component of AI accelerators and advanced GPUs, allowing AI models to process even larger datasets at higher speeds.

SK Hynix and Samsung Electronics together account for around 80% of the global HBM market, with Micron Technology making up much of the remaining supply.

The three firms have benefited from the supply constraint trend, with DRAM and HBM capacity at the three suppliers estimated to be largely committed through 2027.

AI-Related Demand

Continued expansion in AI-related capex by hyperscalers is likely to sustain demand for memory semiconductors and other hardware that enable AI deployment, according to FTSE Russell.

This pattern extends beyond Korea, with 12-month sales growth forecasts for tech hardware companies in other major AI supply-chain markets, including Taiwan and Japan, suggesting that demand for AI-related hardware is expected to remain relatively resilient.

The semiconductor sector’s strong performance can be attributed to the ongoing demand for memory chips, driven by the growth of AI and other emerging technologies.

New semiconductor fabrication plant investment cycles can take three to five years, suggesting that supply constraints could persist over the next few years, supporting the sector’s growth.

Furthermore, the commitment of DRAM and HBM capacity at major suppliers through 2027 indicates that supply-demand conditions could remain tight beyond this period, providing a favorable environment for Korea’s memory-chip leaders.

The expansion of AI-related capex by hyperscalers is expected to drive demand for memory semiconductors and other hardware, supporting the growth of the semiconductor sector.

In addition to Korea, other major AI supply-chain markets, including Taiwan and Japan, are also expected to benefit from the growing demand for AI-related hardware.

The strong performance of Korea and Taiwan’s tech hardware sectors has been driven by the growth of AI and other emerging technologies, which has created new opportunities for investment in the region.

Investors have been attracted to the region’s tech hardware sector due to its strong growth potential, driven by the increasing demand for AI-related hardware and other emerging technologies.

The FTSE Asia Pacific index has moderately outperformed US and global peers over the three months ending July 31, led by Singapore, which has been driven by the strong performance of its financials industry.

The financials industry has been supported by strong growth in banks’ non-interest income, particularly wealth management, and Singapore’s attractive dividend yield and defensive characteristics have also attracted investors during periods of heightened equity volatility.