Foreign Investors Flee Korean Stocks as the AI Rally Cools

Foreign Investors Flee Korean Stocks as the AI Rally Cools

Published October 11, 2026 · Finance-Solutes.com Research Desk

Foreign investors in Korean stocks are heading for the exits as enthusiasm for artificial intelligence (AI) investments fades. The pullback has driven heavy capital outflows and a steep drop in trading activity. South Korea’s $4.3 trillion equity market is now struggling to attract fresh buyers.

Korea was the market to own in the first half of 2026. The Kospi became the best performing major stock index in the world, powered by demand for AI memory chips. That story has changed sharply in the second half, and investors are now asking whether the semiconductor boom can keep going.

Investor takeaway: Bloomberg data shows foreign investors have pulled $131 billion from Korean equities this year, the largest outflow among major Asian markets. Trading value is down 70% from its May peak. Money is rotating toward Taiwan, which offers broader access to the AI supply chain.

Trading Activity Has Collapsed From the May Peak

According to Bloomberg, trading value on the Korean stock market has plunged 70% from its late May high. The Kospi benchmark has also fallen 22% in the second half of 2026. The decline follows a huge run in the first six months of the year.

Foreign selling has been relentless. Bloomberg’s compiled trading data shows overseas investors withdrew $131 billion from Korean stocks this year. That is the biggest outflow of any large Asian market. On Thursday, October 8, the Kospi closed at 6,625.93, down 2.62% on the day.

Why Samsung and SK Hynix Are the Weak Spot

Samsung Electronics and SK Hynix together make up more than half of the Kospi’s weighting. That concentration cuts both ways. It lifted the index on the way up, and it now drags the index down as doubts grow about the chip cycle.

The worry about demand was clear on Thursday. Samsung shares fell even after the company reported that quarterly operating profit had risen almost ninefold. When strong earnings cannot lift a stock, it often signals that investors fear the best news is already priced in.

Retail Support and Buybacks Are Losing Steam

Two pillars that held up the market are now weakening. The first is corporate buybacks. Samsung and SK Hynix are close to finishing their combined share repurchase programs, worth 55 trillion won (about $41 billion). Once those programs end, a steady source of demand disappears.

The second is local retail money. Individual investors have pulled back sharply since the July sell-off. Margin loan balances have dropped to about 33 trillion won from a June peak of 38.6 trillion won. Brokerage deposits have fallen to roughly 100 trillion won from nearly 140 trillion won.

Taiwan Is Winning the AI Allocation

Global investors have not abandoned AI. They are choosing different ways to own it. Taiwan’s Taiex has gained 70% this year. It beat the Kospi by about 23 percentage points over the past quarter.

UBS Global Wealth Management says it prefers Taiwanese stocks for tactical AI exposure. The bank points to Taiwan’s diverse technology hardware ecosystem and strong capital spending from big tech companies. In short, Taiwan offers a wider slice of the AI supply chain than Korea’s memory chip focus.

Korea Still Ranks Among 2026’s Better Markets

The picture is not entirely bleak. Despite the slide, Korea remains one of the stronger markets of 2026 overall. Gains from earlier in the year still cushion the full year result. Hopes for continued AI infrastructure spending also keep some investors interested.

What This Means for Investors

• Concentration risk is real. Two chip makers drive more than half of the Kospi, so index investors are heavily exposed to one theme.
• Watch foreign flows. Weekly foreign net buying or selling is a useful sign of whether the pressure is easing.
• Liquidity matters. Falling trading value and shrinking margin debt can make price swings sharper in both directions.
• Diversify AI exposure. Taiwan’s rise shows that AI themes can be held across several markets and supply chain layers.
• Do not chase either direction. A 22% drop can look like a bargain, but the demand questions behind it remain unresolved.

The market now needs a clear catalyst to win back foreign money. That could be proof of lasting AI chip demand or fresh buying from global funds. Until then, Korean stocks are likely to stay sensitive to every headline about the semiconductor cycle.

Disclaimer: This article is for informational and educational purposes only and does not constitute financial or investment advice. Stock prices and market data change quickly, so always check real-time figures before making any investment decision. For personalized guidance, Finance-Solutes.com’s free courses and expert advisors can help you turn market news into a strategy that fits your own portfolio.

Source: Bloomberg, via Investing.com

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