After the 2026 AI bull market, South Korean stocks plunged 40%, with net foreign selling of about $131 billion

[[**In 2026, South Korea's stock market plunged 40% after an AI bull run. Foreign investors net sold about $131 billion during the year, with Samsung Electronics and SK Hynix as the main targets of the selling. Retail investors who bought at the top suffered heavy losses, exposing the structural fragility of a Korean market overly dependent on foreign capital and a single sector.**

**Key points**

**1. Korean stocks surged and crashed, with foreign investors directing the whole show**

In the first half, the KOSPI led the world, gaining more than 100%, as foreign investors packaged Samsung and SK Hynix as AI infrastructure stocks. In the second half, foreign investors pulled out en masse, and the index retreated 40% from its high, with trading volume shrinking by more than 70% from its peak.

**2. Foreign investors hold pricing power over core assets**

Foreign investors hold about 38% of the Korean stock market's market capitalization, and Samsung Electronics and SK Hynix together carry a weight of more than 50%. The two companies saw about 176 trillion won in net foreign selling, accounting for 86% of total foreign selling, leaving the market with almost no buffer.

**3. A liquidity vacuum worsened the market collapse**

Retail margin balances and account deposits fell sharply, and the two companies' combined buyback program of about 55 trillion won was nearly complete. With no effective buyers to absorb foreign selling, the market saw concentrated panic selling.

**4. Policy missteps repeated a historical tragedy**

The Korean government launched leveraged ETFs during the bubble and then imposed a one-size-fits-all restriction during the pullback, a clumsy approach. Similar foreign harvesting played out long ago in the 1997 Asian financial crisis and the Latin American crisis, and South Korea did not learn the lesson.

**5. Those who bought at the top suffered heavy losses**

The 2x long SK Hynix ETF has fallen 91% from its late-June high, and the road to recovery is long. In a market overly dependent on external liquidity and a single sector, those who exit last ultimately bear all the consequences. 2026-10-16 20:31 The first Asian country this year to be ruthlessly harvested by foreign capital Gelong Quick Take

A few months ago, Korean girls were still posting screenshots on social media of their KOSPI accounts doubling, with captions like "In the AI era, ordinary people can win without effort."

A few months later, the same people have gone silent. Some posted screenshots of their leveraged accounts wiped to zero on forums, leaving only one line: "I thought this time was different."

This is the most glaring contrast in South Korea's capital market in 2026.

In the first half, the KOSPI led major global stock indices; in the second half so far, it has fallen 40%, with trading volume shrinking by more than 70% from its late-May peak.

Yet the KOSPI's cumulative gain since 2025 is still more than 1.3 times. Although Samsung and SK Hynix have now halved from their highs, their market capitalization has still risen more than 3-fold and 6.4-fold over the past two years.

But the dazzling industrial dividend ultimately produced a brutal redistribution of wealth in the capital market.

On October 14, at a National Assembly hearing, the Korean National Pension Fund was sharply criticized as "a cash machine for foreign investors."

The starting point of this round of Korean stock market rally is very simple.

From 2023 to 2025, the Federal Reserve entered an easing cycle, AI infrastructure investment exploded, and global capital searched everywhere for the "cheapest AI entry point."

Samsung Electronics and SK Hynix sit at the core of the memory chip, HBM, and AI server supply chains, and their valuations were clearly lower than those of US tech giants, so they became the preferred targets for foreign investors.

As a result, investment bank research reports, index inclusion, ETF flows, and derivatives leverage jointly spread the narrative, and the KOSPI index soared from a low level, with cumulative gains at one point exceeding 100% in the first half, making it the best-performing major stock index in the world.

In this process, foreign investors played a dual role.

In the early stage, they were the shapers of pricing power: by continuously buying Samsung and SK Hynix, they repackaged memory chips from traditional cyclical stocks into AI infrastructure stocks;

In the later stage, when valuations were pushed up and expectations were stretched to the extreme, they became the first profit-takers to exit.

More ironically, Samsung Electronics' third-quarter operating profit at one point hit a record high, surging nearly ninefold year on year, yet its share price fell instead of rising, showing that the market no longer believes the simple logic that "good performance = rising stock price."

Because when expectations are pushed to the extreme, any result that falls short of "even more extreme" will be interpreted as negative.

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In the first half, retail investors who drove the rally clearly retreated after the July crash. Margin balances fell from a peak of 38.6 trillion won in June to about 33 trillion won, and brokerage account deposits awaiting investment also dropped from nearly 140 trillion won to about 100 trillion won.

The buyback plans of Samsung and SK Hynix that had previously supported the market were also nearing completion, and the two companies' combined buybacks of about 55 trillion won accounted for most of the market's buying last month.

Samsung Electronics' buyback was basically completed in early October, and SK Hynix had only a small amount left to wrap up.

When buybacks exited and foreign investors continued to sell, the market showed an obvious liquidity vacuum.

In fact, funds did not leave slowly; rather, at a certain point the ladder was pulled away all at once, leaving highly leveraged retail investors and passive institutional holders to bear the decline.

The Korean stock market's six-month boom and bust has provided global investors with a real-life example:

When a market bets the fate of its index on two stocks, one sector, and a group of foreign funds, the rise can be dazzling, and the retreat can also be brutal.

What truly determines prices is often not only corporate earnings, but also who is buying, who is selling, and who can continue to take over.

II. How dependent is South Korea on foreign capital?

South Korea's stock market dependence on foreign capital is already obvious in its ownership structure.

As of June 2026, foreign investors held about 37.8%–38.9% of the total market capitalization of the South Korean stock market, with U.S. investors accounting for roughly 42% of foreign holdings.

Foreign ownership of core tech stocks such as Samsung Electronics and SK Hynix once exceeded 60% for a long period; by early August it was still about 46.70% and 50.84%, respectively, and by early October it had fallen further to 46.38% and 49.59%.

This means that the pricing power over the most core assets in the South Korean stock market has long been in the hands of foreign investors.

In terms of trading scale, this dependence is magnified even further.

As of October 14, foreign investors had cumulatively net sold about 203.7 trillion won this year on the main KOSPI board, of which Samsung Electronics and SK Hynix alone were net sold by about 176 trillion won, accounting for 86% of total foreign selling; this year foreign investors withdrew about $131 billion from the South Korean stock market, the most among major Asian markets.

Foreign ownership of Samsung Electronics fell to 46.38%, the lowest since 2008; the foreign ownership rate of SK Hynix fell below its ten-year average.

And the KOSPI index itself is highly concentrated, with Samsung Electronics and SK Hynix together carrying a weight of more than half, which is also an important reason.

This means that once foreign investors sell these two stocks in a concentrated manner, the index has almost no buffer.

During the first half of the year, when the KOSPI rose more than 100%, foreign investors used the AI semiconductor rally to push up the valuations of the leading stocks; in the second half, as foreign investors continued to withdraw, they became a core driver of the index's pullback from its highs.

Now let's talk about liquidity.

As mentioned earlier, South Korean stock trading value has fallen about 70% from its peak at the end of May; retail margin balances have dropped from a peak of 38.6 trillion won in June to about 33 trillion won, and brokerage account deposits awaiting investment have fallen from close to 140 trillion won to about 100 trillion won.

The combined share buyback plans of Samsung Electronics and SK Hynix totaling about 55 trillion won are nearing completion; of the roughly $23 billion in buy orders in the market last month, buybacks contributed the vast majority.

When foreign investors are selling and South Korean stock buybacks are gradually exiting, expecting retail investors to prop up the broader market is simply a fantasy!

Even if the fundamentals of South Korean stocks have not changed, even if SK Hynix and Samsung Electronics remain the kings of AI memory chips, and even without a tightening of monetary policy, funds, after seeing valuations surge, will instinctively compare other markets and shift toward markets with better value for money.

III. Learning from history

If we take a longer view, we will find that foreign investors' operations in South Korea are not unfamiliar.

During the 1997 Asian financial crisis, South Korean chaebols expanded with high debt, short-term external debt far exceeded foreign exchange reserves, and the financial system was highly dependent on overseas rollover.

When the Federal Reserve entered a tightening cycle and the regional crisis spread, international capital quickly withdrew and shorted the won; the won depreciated sharply, the stock market was halved, and South Korea was forced to accept an IMF bailout.

Subsequently, financial markets opened up further, allowing foreign capital to acquire South Korean banks and chaebol equity at low prices; Newbridge Capital's controlling stake in Korea First Bank is a typical case.

The key phrase back then was "a fragile national balance sheet"; this time it has become "a fragile market structure."

South Korea has not repeated a sovereign default-style crisis, but KOSPI is highly dependent on Samsung and SK Hynix, which together carry a weight of more than half; foreign investors hold pricing power, retail investors participate through leverage and ETFs, and corporate buybacks have become a short-term support tool.

In other words, South Korean stocks themselves are inherently fragile, and this fragility is masked during upswings.

Once global capital flows change, South Korea may be the first to have liquidity pulled away.

Of course, it is not necessarily correct to over-criticize and blame foreign capital, angrily accusing them of "kicking away the ladder."

After all, foreign capital itself faces many objective and hard constraints.

First, capital seeks profit; pushing prices up and then selling to take profits is standard practice, as everyone knows.

Second, the weather changed abruptly in the second half of the year: monetary expectations shifted from easing to tightening, rate hikes landed, global bonds were sold off, and risk-free yields kept rising, leading to foreign capital outflows—also a normal phenomenon.

None of this requires any conspiracy theory; it is written plainly on the face of capital.

The real party that should be held accountable is the South Korean government.

Why, despite having lessons from the past, did it fail to learn from them?

Look at the various clumsy moves by the South Korean government this year, including eagerly launching leveraged ETFs and then, during the market bubble period and even during an obvious correction, imposing a one-size-fits-all restriction—clumsy tactics with serious consequences.

Of course, this is also the helplessness of some economies: domestic capital is limited, and foreign capital is indeed needed to lift asset prices, but letting foreign capital in requires conceding a certain voice, pricing power, and interests; the final result is always less than satisfactory, and the vast majority end up in an awkward position.

Such cases were already staged long ago in the 1980s Latin American crisis and the 1997 Southeast Asian financial crisis.

Someone is responsible for telling the narrative, someone for lifting valuations, someone for providing liquidity, and finally someone for bearing the drawdown.

When a market pins all its hopes on two stocks, one sector, and a group of foreign funds, the excitement comes quickly, but the exit is even harsher.

The most heartbreaking thing is undoubtedly for those who bought South Korean stocks at high levels: the once-hot 2x long SK Hynix ETF in the Hong Kong stock market is now quoted at HK$19.22, down 91% from its late-June high of HK$193.65.

The road to breaking even may be very long, and cutting losses may be the helpless choice of many investors.

For them, what truly needs to be remembered is not that "foreign capital harvested South Korea," but that any market lacking diversified absorption capacity and overly dependent on external liquidity may, when the wind changes next time, leave those who exit last stranded where they are. Channel: Finance and Economics. This content is published with the author's authorization; the views represent the author only and do not represent Huxiu's position. If you have objections or complaints about this manuscript, please contact tougao@huxiu.com. Everyone who is changing and wants to change the world is on the Huxiu APP[ ]