U.S. tech stocks and South Korean stock markets have seen their correlation rise to the highest level since 2021, with analysts warning of potential risks.

Summary of Key Points

Recently, the correlation between U.S. tech stocks (Nasdaq 100 index) and South Korean stock market (KOSPI index) has reached its highest level since 2021, mainly due to Samsung and SK Hynix—two companies that account for half of the KOSPI's weight and are at the core of the AI hardware supply chain, providing storage chips for data centers of major U.S. tech giants. This linkage has made the South Korean stock market a “leading indicator” of AI demand, but it also means that investors no longer benefit from diversifying their risks by holding shares in both markets. However, the trends of the two markets may diverge in the future due to differences in the strategies of these chip companies.

1. Why Have the Korean and U.S. Stock Markets Suddenly Become Closely Linked? AI Is the Key Factor

The 60-day correlation between the KOSPI and the Nasdaq 100 has recently reached 0.5 (with 0 indicating complete independence and 1 indicating perfect synchronization), the highest level since 2021. The reasons are straightforward:

• Samsung and SK Hynix account for more than half of the KOSPI index, making them a critical component of the South Korean stock market;
• These companies are major suppliers of AI hardware—AI servers require large amounts of DRAM (high-speed memory) and high-bandwidth memory (more advanced memory specifically for AI), which they almost monopolize in the global market;
• The data centers of U.S. tech giants (such as Google, Amazon, Microsoft) rely on these chips to support their AI operations, so the performance of these South Korean companies directly affects the overall KOSPI index.

Analysts have stated, “The KOSPI is essentially a semiconductor index now, and it’s naturally closely tied to U.S. tech stocks.”

2. The South Korean Stock Market Has Become the “Daily Morning News” for AI Demand

Since the South Korean stock market opens earlier than the U.S. market, it has become a global indicator of AI trends:

• Example 1: On July 13, SK Hynix plummeted by 15%, causing the KOSPI to fall by more than 8%; the Nasdaq 100 also dropped by nearly 2% on the same day, with U.S. chip companies like Micron and Intel following suit;
• Example 2: On July 27, when U.S. semiconductor stocks were sold off, South Korean semiconductor stocks experienced similar declines—SK Hynix fell by over 10%, Samsung fell by 8%, and related companies like Samsung SDI and LG Chem also declined;
• Important Note: Samsung releases its earnings reports two weeks before U.S. chip companies, making its performance indicators the first official signals of AI demand. SK Hynix, with its high-bandwidth memory (a critical component for AI), is even more indicative of AI market trends. In short, to understand the day’s AI sector performance, look at South Korean semiconductor stocks.

3. Risk Warning: Diversification No Longer Works

Previously, investors bought U.S. tech and South Korean stocks to spread their risks geographically. However, this no longer applies:

• Joint Movements: Both markets are driven by AI hardware, so if U.S. tech giants reduce chip purchases, the South Korean market is more affected than others;
• Greater Volatility: South Korean storage stock prices are already more volatile than those of U.S. chip stocks, and leveraged ETFs (which amplify price movements) further increase this risk;

Analysts conclude, “Buying South Korean and U.S. tech stocks now is like putting all your eggs in one basket—both markets rise and fall together with AI trends, eliminating the benefits of diversification.”

4. Will the Link Between the Two Markets Diverge in the Future? It’s Possible Due to Corporate Strategies

Although the current correlation is high, long-term trends may separate:

• Differences in Capital Spending: For example, while Micron is building factories in the U.S., Samsung may focus on overseas expansion, which will affect future production and profits;
• Product Portfolio Differences: Companies that specialize in high-bandwidth memory (a key AI demand) will have a competitive advantage;
• Policy Support: The U.S. provides subsidies to domestic chip companies, while South Korean firms may not have this benefit, leading to potential performance disparities.

Therefore, the current high correlation is not permanent. As corporate strategies evolve, the South Korean and U.S. stock markets may follow different paths.

Conclusion

The strong connection between the Korean and U.S. stock markets is a natural outcome of the AI era. It presents both opportunities (early signals of AI trends) and risks (diminished diversification benefits). For individual investors, if they already hold U.S. tech stocks, buying South Korean semiconductor stocks may not provide additional risk protection but could instead double their exposure to AI-related fluctuations. Whether to continue holding these investments depends on changes in the strategies of the chip companies.