South Korea's KOSPI Falls into Bear Market as Capital Rotates to Hong Kong Tech Stocks
N.R. Finch
South Korea's KOSPI has dropped over 20% from its peak — a technical bear market — with foreign investors net-selling roughly $110 billion in Korean stocks this year; some of that capital is flowing into Hong Kong tech, but the rotation's staying power hinges on whether Chinese tech delivers on earnings in the second half.
How did the KOSPI slide into bear territory?
The KOSPI has fallen more than 20% from its high, crossing the threshold for a technical bear market (a 20% decline from peak).
The trigger: regulators tightened scrutiny on margin trading → retail investors forced to unwind leveraged positions → selling snowballed into a stampede.
In plain terms = once regulators cracked down on borrowed-money bets, leveraged retail traders had to dump shares to repay loans — and that wave of forced selling fed on itself.
How much foreign money left — and who got hit hardest?
Per South Korean government data, foreign investors net-sold roughly $110 billion in Korean equities from the start of the year through early July.
Memory-chip maker SK Hynix alone accounted for about one-fifth of total foreign selling. This means → the exodus targeted the very semiconductor blue chips that the "AI trade" had pushed highest.
Samsung Electronics reported better-than-expected earnings and still saw its stock sold off — good numbers could not stop the outflow, confirming that sentiment has turned broadly negative.
Where is the money going?
The Hang Seng Tech Index has rebounded roughly 10% from its June 26 low, tracking names like Alibaba and other Chinese tech leaders.
Suzhou Securities analyst Chen Gang said: "The recent Hong Kong rally reflects global capital rebalancing — underperforming assets are absorbing funds seeking diversification."
In plain terms = Korean semiconductors had been priced to perfection; capital started hunting for pockets that hadn't run up yet, and Hong Kong tech fit the bill.
Can Hong Kong tech actually absorb this rotation?
The Hang Seng Tech Index is still down about 15% year-to-date, trailing global peers — this bounce started from a very low base.
A structural weakness: constituents are dominated by e-commerce revenue and lack AI-hardware plays. This means → the index can catch the "rebalancing" tailwind, but it cannot directly inherit the "AI hardware" narrative thread.
For context, the KOSPI had more than doubled earlier this year before pulling back, and the Nasdaq-100 is up 15% year-to-date — Hong Kong tech's valuation gap is relative, and how much it can close depends on its own earnings.
What is the core logic behind this Asia capital rotation?
Analysts' read: the Asian AI-trade narrative is shifting — capital is exiting "priced-to-perfection" Korean semiconductors and moving into Chinese tech for a re-rating opportunity.
Rising expectations of Chinese policy support underpin this logic. This reflects a bet not just on cheap valuations but on a policy catalyst.
The key uncertainty: whether this rotation lasts depends on Chinese tech delivering on earnings in the second half — if results disappoint, capital may exit again.
Content is for reference only, not financial advice.