South Korea’s KOSPI market enjoyed a white-hot streak in the first half of the year, more than doubling in value by the end of June. The massive bull run was powered by unprecedented gains in two semiconductor stocks, with Samsung Electronics nearly tripling in value and SK Hynix rising more than fourfold by the time they had reached their mid-year peaks, and during this period, speculative retail investment was rife, with listed exchange-traded fund (ETF) instruments offering leverage on these two shares.
But July brought a vicious reversal of fortunes as South Korea’s regulators clamped down on leveraged instruments tied to KOSPI stocks, while investors questioned the durability of the AI rally that has powered the index to record highs this year.
As a result, South Korea’s equity market shed as much as $2.18 trillion in value between Monday and Wednesday this week alone, as investors rushed to unwind positions in the country’s semiconductor and AI-related stocks. Ironically, SK Hynix reported on Wednesday that its quarterly operating profit rose sixfold year-on-year, while Samsung posted a 250-fold surge in chip profits, with an expectation that memory shortages are likely to worsen next year.
This was still not enough to meet analysts’ and speculators’ lofty expectations. Samsung and SK Hynix between them account for nearly half of KOSPI’s total market capitalisation, and a collapse in their value triggered back-to-back circuit breakers on the KOSPI on Tuesday and Wednesday, exacerbated by leveraged hedge funds and speculators finding themselves underwater on these positions.
But earlier today, the KOSPI picture had once again changed dramatically, erasing many of the losses of the historic rout earlier in the week. The index rebounded by 17.9% as at the market’s close on Friday, 31 July. SK Hynix (up 29.95%) and Samsung (up 26.8%) clawed back many of their losses, boosted by the Magnificent Seven in the US: Microsoft and Amazon both reported surging second-quarter revenues from their cloud businesses, promoting investor confidence in the AI and data centre infrastructure buildout that has fuelled blockbuster profits for Samsung and SK Hynix.
Adding to this morning’s surge was news on Thursday that Situational Awareness, a highly leveraged hedge fund that was betting big on AI stocks, had apparently liquidated most of its public equity holdings in a single trade. Traders cited the Situational Awareness trade as a likely influence in the fierce AI selling in prior sessions.
As of today, the KOSPI remains down by around 1.4% for the week and 22.2% for the month, against a gain of roughly 53% year-to-date, offering a vivid snapshot of how volatile the Asian AI trade has become.
Looking ahead to the rest of the year, investors should brace for more volatility in AI-related stocks as investors watch their results for evidence of returns. South Korea’s and Taiwan’s semiconductor giants are now joined at the hip with the American cloud providers and AI software companies that represent their biggest client base.
Competition from Chinese chipmakers to South Korean semiconductor firms and questions over how binding the “long-term agreements” underpinning data-centre spending are in reality may feed uncertainty in the months ahead. The next major test is on 26 August, when Nvidia, a bellwether for AI and data centre spending, reports earnings. (SK Hynix is the key supplier of chips for Nvidia’s new Rubin processor).
Nevertheless, SK Hynix and Samsung Electronics remain comparatively attractive from a valuation perspective relative to many US-listed AI beneficiaries, despite their substantial year-to-date gains.
“South Korea’s retail investors, nicknamed ‘ants’ in local market parlance, have been piling into leveraged single-stock ETFs tied to semiconductor giants like Samsung and SK Hynix. When the KOSPI started its nosedive, margin calls hit. Forced liquidations followed, with brokerages selling positions whether investors wanted them to or not, locking in losses at the worst possible time.”
– The editorial team at Crypto Briefing
Global News
- South Korea announced new measures on Wednesday to stabilise its stock market after a sharp sell-off in AI-related shares pushed the KOSPI about 40% below its June peak. The government tightened rules on leveraged ETFs and increased deposit requirements after margin calls and forced selling intensified the market sell-off. The reforms reflect growing concern that leverage, rather than fundamentals, had become a key driver of both the AI-fuelled rally and its subsequent reversal, with regulators now moving to curb risks that critics say should have been addressed earlier.
- South Korean stocks rebounded by a record 17% on Friday as investors bet the unwinding of leveraged positions was nearing an end and renewed optimism over global AI spending lifted semiconductor shares. Overseas investors bought a net 7 trillion won of KOSPI stocks, while government support measures and stronger-than-expected US technology earnings helped restore confidence. The rally suggests the recent sell-off may have been driven more by forced deleveraging than deteriorating fundamentals, although volatility is likely to remain elevated.
- Brent crude remained near $88 a barrel on Friday and is on track for its biggest monthly gain since March, rising about 21% in July as the escalating US-Iran conflict disrupted energy markets and heightened concerns over global oil supplies. Although shipping through the Strait of Hormuz has begun to recover, attacks on tankers in the Red Sea and Black Sea continue to threaten global energy supplies, while the IMF warned the conflict could still weigh on global economic growth if disruptions persist.
- The US economy remained resilient in the second quarter despite annualised GDP growth slowing to 1.5%, according to an advance estimate released by the Bureau of Economic Analysis on Thursday. Consumer spending, which accounts for about two-thirds of economic activity, rose at a stronger-than-expected 3.2% annualised rate, while business investment remained robust, driven by demand for industrial equipment and AI infrastructure. A key measure of underlying domestic demand accelerated to 3.9%, its strongest pace since early 2023, highlighting an economy that has so far weathered the fallout from the Iran war.
- The Fed held rates steady for a fifth consecutive meeting on Wednesday at 3.5% to 3.75%, but a 9-3 vote, with three policymakers favouring a rate hike, highlighted growing concern over resurgent inflation. Chairman Kevin Warsh insisted there was “no soft inflation target”, arguing that higher market rates had already done some of the Fed’s work while reiterating the committee’s commitment to “deliver price stability”.
- Australia’s core inflation slowed to 3.6% in the second quarter, below economists’ expectations, the Australian Bureau of Statistics reported on Wednesday, prompting traders to cut the probability of another Reserve Bank of Australia rate hike this year to about 50% from more than 90%. The Australian dollar and three-year bond yields fell as investors increased expectations that the central bank will leave interest rates unchanged at its 11 August meeting. However, policymakers are expected to remain cautious as services inflation remains elevated despite broader signs of easing price pressures.
- SK Hynix reported record second-quarter operating profit on Tuesday, up more than sixfold to 9.2 trillion won ($6.7 billion), driven by strong demand for AI memory chips. However, the results fell short of investors’ elevated expectations, sending the shares down 9.6% on Wednesday as investors questioned whether AI spending can remain sustainable. SK Hynix and Samsung argued on Thursday that growing use of multiyear supply agreements and persistent memory shortages point to a more durable AI investment cycle than previous semiconductor booms.
- Microsoft recorded the largest one-day increase in stock market value in history on Thursday, adding about $450 billion after quarterly results released on Wednesday restored investor confidence in heavy AI spending. Azure revenue rose 43%, beating analysts’ estimates, while Microsoft forecast Azure growth of 45% in the current quarter and generated $19.6 billion in free cash flow, reinforcing its ability to fund continued AI investment.
- Amazon shares jumped more than 9% in extended trading on Thursday after Amazon Web Services revenue accelerated for a fifth consecutive quarter, rising 37% and beating analysts’ estimates, easing investor concerns that heavy AI spending would fail to generate returns. The company raised its 2026 capital expenditure forecast to $220 billion, with most of the investment earmarked for AI, while saying its AI and custom chip businesses had each reached annual revenue run rates of $25 billion, underscoring the rapid growth in demand for its AI services.
- Apple shares fell about 6% in late trading on Thursday after the company warned that component shortages and rising memory costs would weigh on fourth-quarter sales, with revenue expected to grow between 9% and 11%, below analysts’ expectations. The weaker outlook overshadowed stronger-than-expected quarterly revenue of $109.4 billion and highlighted the growing impact of supply constraints on one of the technology sector’s largest companies.
- Meta said on Wednesday, alongside its quarterly results, that it expects to spend up to $145 billion on AI infrastructure this year, about double last year’s investment, as it accelerates its AI expansion. The heavy spending drove second-quarter free cash flow down 91% to $784 million, highlighting the financial cost of the strategy. The company also disclosed on Thursday that it has committed a further $279 billion in future AI-related data centre lease obligations that are not yet reflected on its balance sheet, underscoring the scale of its long-term investment. CEO Mark Zuckerberg said Meta is uniquely positioned to commercialise personal AI agents at scale.
- Nvidia is pursuing AI infrastructure deals worth more than $750 billion, including talks reported on Saturday to help finance OpenAI’s computing capacity and a partnership announced on Monday to expand AI data centre investment in South Korea. The investments have renewed concerns that the chipmaker is helping finance the infrastructure driving demand for its own processors, reinforcing fears that AI spending and valuations are becoming increasingly self-sustaining. CEO Jensen Huang has defended the strategy, saying the investments are commercially attractive and expected to generate long-term returns.
- Visa announced on Tuesday that it will cut about 2,600 jobs, or roughly 7% of its workforce, primarily in technology and product teams, as CEO Ryan McInerney restructures the business to improve efficiency and invest in higher-growth opportunities. McInerney said AI is accelerating changes in how work is done across the company, making some roles redundant. The announcement came ahead of quarterly results released on Wednesday, which beat analysts’ expectations for both revenue and earnings.
- SpaceX shares fell 20% on Tuesday, extending their decline to 42% from their June peak and wiping more than $1.2 trillion from the company’s market value as investors grew increasingly sceptical of AI-related technology valuations. The stock briefly traded below its June IPO price, while a large employee share lock-up due to expire on 6 August could add further selling pressure.
- As at Thursday’s close, the S&P 500 was 0.35% up for the week.
Local News
- National Treasury released R7.1 billion in previously withheld equitable share funding to 49 municipalities on Friday after Finance Minister Enoch Godongwana lifted the freeze on Tuesday over concerns about service delivery and unpaid municipal workers. National Treasury warned that December allocations could again be withheld unless financial management improves, with 28 municipalities still failing to meet the required standards.
- Godongwana appointed a new Public Investment Corporation board on Wednesday, chaired by Seiso Mohai, as the state asset manager moves to restore stability following the suspension of its CEO and chief investment officer, the resignation of six directors and an internal survey that revealed widespread staff distrust. A May PwC review identified leadership and accountability weaknesses, while the appointment of turnaround specialists has heightened scrutiny of the PIC’s unlisted investment portfolio.
- Producer inflation eased slightly in June but remained elevated at 7.5%, driven largely by higher petroleum and chemical prices, Statistics South Africa said on Thursday. Producer inflation for coke, petroleum and chemical products remained high at 22%, although electricity and water inflation slowed sharply to 5.5% from 12.3%, signalling some easing in cost pressures. The data follows the South African Reserve Bank’s decision last week to leave interest rates unchanged despite rising consumer inflation.
- The South African Revenue Service’s specialised tax crime unit generated nearly R319 billion in additional compliance revenue during the 2025/26 financial year, Godongwana told MPs on Monday. Since its establishment in July 2020, the unit has completed 559 investigations into tax evasion, customs fraud and illicit trade, referring 165 cases to the National Prosecuting Authority, including 108 linked to state capture with an estimated value of R25 billion.
- Cape Town’s CBD attracted a record R12.8 billion in property investment during 2025, up 41% from the previous year, according to the State of Cape Town Central City Report 2025 released on Thursday. Residential developments accounted for more than half of the 29 projects in the pipeline, reflecting continued demand for inner-city living and supporting the area’s evolution into a mixed-use, 24-hour precinct. The report cautioned that affordable housing remains a key challenge despite the strong growth.
- Standard Bank and Pepkor are in exploratory talks to form a personal banking partnership that would combine the retailer’s 6,000-store footprint with the bank’s financial expertise to compete more aggressively with Capitec in the mass market, the companies confirmed on Thursday. The discussions come less than a year after Pepkor secured a banking licence, with its PlusB digital bank expected to launch next year.
- More than half of South African workers are using sports betting and online gambling to cover budget shortfalls and repay debt, according to Old Mutual’s 2026 Savings and Investments Monitor released on Wednesday, highlighting mounting financial pressure on lower- and middle-income households. The trend risks deepening household indebtedness as gambling increasingly replaces traditional saving and budgeting, with total gambling turnover exceeding R1.5 trillion in 2025.
- As at the time of writing, the rand was 1.3% stronger against the dollar, and the ALSI was 2.3% up for the week.
Sources: Dynasty, Daily Investor, Reuters, Bloomberg, Daily Maverick, Business Day, etc.
