The 60-day correlation between US and South Korean technology stocks soared to 0.50! KOSPI became a “semiconductor index”, and investors lost the “geographical dispersion dividend”

The Zhitong Finance App learned that as the wave of AI investment deeply binds the fate of US tech giants and South Korean memory chip makers, fluctuations in Wall Street technology stocks are becoming more and more synchronized with the trend of the Korean stock market. According to data provided by Rayliant, the 60-day correlation between the Korea Composite Stock Price Index (KOSPI) and the Nasdaq 100 Index has recently climbed to about 0.50, the highest level since 2021.

This increasingly close relationship reflects the growing weight of Samsung Electronics and SK Hynix in KOSPI — the two companies together account for more than half of the market value of the KOSPI Index. Both companies are at the core of the AI hardware supply chain, supplying critical memory chips for data centers operated by US tech giants.

“The increase in correlation is because KOSPI has become a semiconductor index,” Futurum Group analyst Rolf Bulk said via email.

Samsung and SK Hynix are increasingly dependent on capital expenses from the same group of hyperscalers (hyperscalers), and these expenses also drive profits for US semiconductor and technology companies. According to Bulk estimates, the share of data center demand in global DRAM demand has risen from about 40% last year to more than half this year, and this proportion is expected to increase further. DRAM (Dynamic Random Access Memory) is an essential component in AI servers.

This linkage enables Asian investors to sense the strong and weak signals of global AI transactions in advance before Wall Street opens.

“Samsung and SK Hynix provided the first liquidity market response to the dynamics affecting global AI demand overnight,” said Jung In Yun, founder of Fibonacci Asset Management. “SK Hynix in particular has become an important weather vane because of its exposure to high-bandwidth memory (HBM) — one of the most critical components in the AI supply chain.”

The recent trading market confirms this trend. On July 13, KOSPI fell more than 8% due to SK Hynix's sharp drop of 15% and a record drop. On the same day, the Nasdaq 100 index closed down 1.88%. Major technology stocks were generally lower. Micron Technology closed down 4%, SanDisk fell sharply by 12%, and Intel pulled back 6%.

Peter Kim, head of global investment strategy at KB Financial Group, said that the rise in Korean memory chips started later than NASDAQ because US investors initially focused more on hyperscale cloud service providers. However, the magnitude and volatility of recent gains has prompted global investors to view South Korea as a weather vane for broader AI transactions.

Samsung's performance guidelines can also be the first to provide specific signals of AI demand every quarter. The company usually releases earnings reports about two weeks earlier than major US semiconductor companies.

However, analysts also warned that South Korea and US tech stocks are fluctuating in the same direction, rather than one side continuing to lead the other.

“The outlook for US tech stocks and South Korean tech stocks is increasingly driven by the same underlying factor, which is market sentiment towards AI hardware transactions,” said Phillip Wool, head of research at Rayliant Global Advisors.

When AI-related news comes out while the US market is closed, Samsung and SK Hynix can be used as “proxy indicators” of how investors may react after Wall Street reopens; while the news occurred during the US trading session, NASDAQ also provided a preview of the next Korean stock trading day.

This closer connection also harbors risks. The rising correlation is eroding the diversified distributed allocation dividends investors have traditionally received by holding US and South Korean stocks at the same time, and industry veterans agree.

“Korea no longer provides hedging and diversification effects against US tech stocks. “When half of the index is linked to a cyclical theme, the slowdown in capital spending by hyperscale cloud service providers will hit the Korean market far more than most other markets,” Bulk said.

He added that South Korean storage stocks are naturally more volatile than many US chip stocks, and the capital flow of leveraged ETFs will further amplify their volatility.

Wool also emphasized that as the AI theme increasingly becomes the dominant driver of Korean and US tech stocks, investors are losing one of the core reasons to hold two markets at the same time — geographical decentralization.

“When all of these markets are essentially driven by the same big risk factor, you find yourself losing the 'international diversification' dividends that were initially sought when seeking distributed allocation to different geographical markets such as the US and South Korea,” said Wool.

That being said, the trend is also likely to diverge even more over time. Kim pointed out that Micron, Samsung, and SK Hynix are all currently benefiting from the simultaneous rise in DRAM prices, but differences in capital expenditure, product structure, and US policy support for local chip production may eventually cause the performance of the three companies to diverge.