Retail Investors Flee to US Stocks as Samsung, SK hynix Slump

Korean retail investors are once again turning to the US stock market as shares of Samsung Electronics and SK hynix fell sharply last month. But Wall Street itself has issued a warning to “beware of overheating.” Analysts say excessive optimism about the US market has grown, and US stocks are already showing considerable signs of risk.

Korea’s “Seohak Ants” Turn to US Stocks Again Amid Samsung, SK hynix Correction

Samsung Electronics and SK hynix led the Korean stock market’s rise this year on expectations of gains from AI chips. But in July, concerns over slowing industry conditions combined with profit-taking sell orders led to a significant correction in their share prices. As uncertainty over the global semiconductor cycle grew and market expectations had risen, investor sentiment contracted quickly even on minor negative news.

In particular, with semiconductors accounting for a large share of the domestic stock market, declines in Samsung Electronics (005930.KS) and SK hynix (000660.KS) led to a broader deterioration in investor sentiment across the KOSPI. Domestic investors turned their attention to the US stock market, which has maintained a relatively strong trend.

According to Seibro, the securities information portal of the Korea Securities Depository, net purchases of US stocks by Korean retail investors reached $4.64241 billion (about 6.55 trillion won) last month. This was the largest amount in six months since January this year.

With US big tech and AI-related companies at the center of the market, a trend of Korean investors saying “buy US artificial intelligence (AI) stocks instead of domestic semiconductors” has re-emerged.

New York Stocks Are Racing, but Wall Street Says “Too Optimistic”

The problem is that the US stock market is also already pricing in high expectations. In a recent report on the 7th (local time), the Bank of America (BofA) strategy team said investor optimism had risen excessively and recommended reducing exposure to risk assets.

The “Bull & Bear Indicator” of the BofA strategy team led by Michael Hartnett recently rose to 9.7. This is the highest level since 2021. The analysis holds that the stock market’s rally is spreading beyond some technology stocks to multiple sectors, and that funds flowing into risk assets such as high-yield bonds are signs of overheating.

Strategist Hartnett said investors should prepare for the possibility of unexpected negative developments in the economy, monetary policy and the AI industry, and suggested increasing exposure to safe-haven assets such as defensive stocks, long-term bonds and the US dollar.

Global investment funds are also concentrating in the US market. According to BofA’s tally citing EPFR Global data, US equities were expected to see net inflows of $9.6 billion in the week through the 5th. This is the largest on record, meaning a strong rally is continuing. At the same time, it also means that investors’ positions are concentrating in one direction.

US Stocks Face Big Variables in AI Earnings and Interest Rates

The Kospi is displayed in the dealing room at Hana Bank’s headquarters in Jung-gu, Seoul, on the 4th, as the index plunged by its largest margin ever, falling below the 5,100 mark in the aftermath of the outbreak of war between the United States and Iran. /Yonhap News

An advertising campaign unveiled by Kiwoom Securities on an electronic billboard at the Nasdaq Tower in New York on the 2nd (local time) to announce the leap of the Korean stock market. Kiwoom Securities

SK Group Chairman Chey Tae-won and other key executives pose for a photo in front of the Nasdaq Tower in Times Square, New York, on the 10th (local time), the day SK hynix began trading its Nasdaq ADRs. Reuters/Yonhap News

Elon Musk and a rocket appear on a building screen in New York on the 12th (local time), celebrating SpaceX’s listing as trading began on the Nasdaq. [EPA=Yonhap News. Resale and DB prohibited]

The key variables that will determine the direction of the US stock market going forward are expected to be the earnings of AI companies and the monetary policy of the Federal Reserve (Fed).

Recent signs of a slowdown in employment are raising expectations for rate cuts. However, some forecast that if price pressures do not fall sufficiently, it will be difficult for the Fed to quickly shift to easing policy. If interest rates remain higher than expected for longer, it could be a burden for AI-related stocks and growth stocks that command high valuations.

The same goes for the AI industry. If AI-related companies including Nvidia continue to post better-than-expected earnings, there is room for further gains, some say. However, the possibility that the market could cool quickly cannot be ruled out if actual profitability falls short of expectations relative to the scale of AI investment.