South Korea's KOSPI index has staged one of the most dramatic turnarounds in global equities, surging nearly 22% from its July 30 low and briefly reclaiming the 7,000 level on Friday. The benchmark opened 2.7% higher at 6,995.67 and touched 7,010.86, its first move above that threshold since July 24, as cooling US inflation encouraged investors to pile back into the chipmakers that drove the summer's brutal sell-off.
Samsung Electronics gained about 1% in early trading, while SK Hynix jumped more than 5%, extending a rebound that has left the KOSPI on track to snap seven consecutive weekly declines. The index's performance has outpaced most regional peers, with Thursday alone bringing a 3.6% gain as renewed demand for the two chip giants emerged after investors reassessed the outlook for AI memory chips.
From liquidation to recovery
The speed of the rebound is striking because just two weeks ago the KOSPI was mired in a deep rout. By Thursday, the index had climbed almost 22% from its July 30 low, meeting the conventional threshold for a new bull market. Macquarie analysts view much of July's decline as a positioning and fund-flow shock rather than a collapse in semiconductor fundamentals, noting that strong AI infrastructure demand and tight memory supply continue to support the earnings case for Korea's largest chipmakers.
That distinction matters after leveraged products and margin selling amplified the earlier downturn. South Korean regulators have since tightened access to single-stock leveraged ETFs, potentially reducing one source of the extreme swings that characterized the summer sell-off. The KOSPI's recent rebound has been driven by AI demand, but capex risk remains a watchpoint.
Fed relief gives tech breathing room
The latest catalyst came from the US, where both consumer and producer inflation data reduced fears of an imminent Federal Reserve rate increase. US producer prices were unchanged in July after falling 0.1% in June, while annual PPI inflation slowed to 4.7% from 5.5%. Combined with softer consumer inflation and July's weak employment report, the data pushed the implied probability of a September Fed hike towards one-third.
Lower rate risk is particularly supportive for Korea because the KOSPI has become heavily exposed to high-growth semiconductor companies. It also helped lift the broader region: MSCI's Asia-Pacific index outside Japan rose 0.3% and was headed for a 2.7% weekly advance, while Japan's Nikkei 225 gained 1.5% and was on course to rise more than 5% for the week. The KOSPI led Asia higher after weak US jobs data cooled Fed hike bets earlier this month.
Oil and geopolitics remain the weak point
The rally is not without macro risks. Brent traded near $87 a barrel and was still heading for a roughly 4% weekly gain as US-Iran negotiations remained stalled. Saxo strategist Charu Chanana sees lower Fed risk and softer oil from recent highs as supportive for equities, but considers the rally vulnerable to geopolitical headlines. Another crude spike could quickly revive inflation concerns and tighten financial conditions.
The yen provides another regional pressure point, trading near 159.4 per dollar as investors price an increasing chance of a September Bank of Japan hike. The oil rebound remains tied to geopolitical developments, with Iran linking Hormuz reopening to sweeping US conditions.
While the KOSPI's recovery has been impressive, some analysts caution that the underlying drivers—AI demand and memory supply—remain intact, but the market's sensitivity to macro headlines is high. The July's $29B AI exodus from Taiwan and Korea signaled a rotation that may now be reversing, but the sustainability of the rally will depend on continued earnings support and a stable macro environment.
This article is for informational purposes only and does not constitute financial advice.
