Is the Asian AI bubble "starting to crack"? The Korean stock market has given the first warning signal

The South Korean stock market is sending early warning signals that the Asian AI investment boom may be peaking. As an important barometer for AI concept stocks, the KOSPI index has recently experienced significant volatility, ending its previous strong upward trend characterized by low volatility.

According to media reports, the KOSPI index has maintained a perfect synchronous trend with the Global X Artificial Intelligence & Technology ETF (AIQ) since May, but the recent upward momentum has reversed, leading to consecutive sharp declines and significant fluctuations. The index has now fallen to the 21-day moving average, while the 50-day moving average remains far below it.

Technical Warnings of the AI Boom in the South Korean Stock Market

The technical indicators of the KOSPI index show clear signs of overheating. The weekly and monthly Relative Strength Index (RSI) levels have reached extreme zones, indicating that the market is severely overbought. Since late October, the volatility curve structure has shown extreme inversion, reflecting a collective chase for upward exposure by investors. This phenomenon typically signals excessive optimism in market sentiment and the risk of a pullback. Bank of America previously warned:

“Under our bubble analysis framework, the KOSPI is one of the most volatile markets. This does not necessarily mean that the market is about to reverse, but it is undoubtedly an additional warning signal indicating that market volatility is unusually severe and rapid.”

The KOSPI index is highly correlated with U.S. AI concept stocks such as NVIDIA (NVDA) and Palantir (PLTR), indicating that global AI investments have formed a highly interconnected single trading theme.

Shift in Investment Hotspots in the South Korean Market

The focus of South Korean investors underwent a significant shift in September. Previously a major hub for cryptocurrency trading, South Korea has seen a collapse in cryptocurrency trading volume, with funds massively shifting towards AI concept stocks.

Data from Upbit exchange shows that South Korea's cryptocurrency trading volume has significantly shrunk, while the trend of SK Hynix has begun to diverge noticeably from Bitcoin since September. Google Trends data indicates that the search interest of South Korean users in SK Hynix has surpassed that of Bitcoin, reflecting a fundamental shift in investor interest. South Korean investors are now concentrating on chasing AI investment opportunities, reallocating funds previously invested in cryptocurrencies into semiconductor and AI-related stocks.

The Unique Value of the South Korean Stock Market as a Global Economic Barometer

The close attention to the South Korean stock market stems from its unique position in the global economy. Over 40% of South Korea's GDP comes from exports, covering key areas such as semiconductors, automobiles, batteries, and displays, making it a direct proxy for the global supply chain and AI capital expenditures.

The South Korean stock market is highly sensitive to cycles. When global PMI, trade volumes, and semiconductor prices hit bottom and rebound, the South Korean market typically reacts first. International investors view South Korea as a "liquidity emerging market beta trade," and when funds are reallocated to Asia or emerging markets, KOSPI and KOSDAQ often become the preferred targets.

The dominance of SK Hynix and Samsung Electronics in the HBM and AI memory sectors makes the performance of the South Korean market a real-time reading of the actual strength of AI infrastructure construction, and this special position means that any abnormal fluctuations in KOSPI have global significance