Korea’s KOSPI Index Dives Over 7%, Warning Bull Market May Be Nearing End

From recent performance, the South Korean KOSPI index broke 7,000 points on May 6 and then took only eight trading days to break above 8,000 points; as of today, the KOSPI has gained more than 80% year-to-date, surpassing the 75.63% increase in 2025 and becoming one of the best-performing major stock indices globally.

It should be noted that this market rally was almost entirely dominated by two heavyweight stocks, Samsung Electronics and SK Hynix, which together account for 44% of the KOSPI's total market capitalization.

From a market perspective, this rally structure in the South Korean stock market is unhealthy, showing excessive concentration and continuously increasing risks. Analysts at Mirae Asset believe that the South Korean stock market is currently trading at a valuation of approximately 9 times this year's earnings. If AI chip demand persists, the KOSPI has a chance to hit 10,000 points; however, if AI demand collapses due to inflation, slowing growth, or the escalation of Middle East conflicts, the index could fall to 4,500 points.

From a market sentiment perspective, the South Korean stock market has clearly exhibited signs of overheating. Driven by a continuous rally, sentiment among domestic retail investors has reached a fever pitch. According to data from the Korea Financial Investment Association, as of May 4, 2026, the number of active stock accounts stood at 105.22 million—roughly double South Korea's total population of approximately 51 million—reflecting that many South Koreans hold multiple trading accounts.

A strong sense of "FOMO" (Fear Of Missing Out) has swept through offices and households, prompting an increasing number of parents to start buying stocks for their children. Data from Toss Securities shows that the number of new accounts opened by minors under the age of 18 in the first quarter surged nearly tenfold compared to the same period last year.

The current market sentiment in South Korea is highly reminiscent of the atmosphere in China's A-share market just before the 2015 crash. From 2014 to the first half of 2015, the Shanghai Composite Index nearly doubled in just about six months, as a massive influx of retail investors and leveraged funds poured into the market.

According to Reuters, the rally in Chinese equities was largely driven by "mom and pop" retail investors, who accounted for approximately 60% of the A-share investor base; meanwhile, margin debt balances expanded rapidly, and a sentiment that one could profit simply by buying stocks permeated the market. Subsequently, the market value of A-shares was nearly halved between June 2015 and January 2016.

While the current situation in the South Korean market is not identical to that of the A-share market back then, the two exhibit similar characteristics on a sentimental level: continuous positioning by retail investors, the influx of household funds, a surge in accounts for young investors and minors, and the perception of AI and semiconductors as "can't-lose" long-term themes. As more people begin to take for granted that the market will continue to rise, risks are gradually mounting.

From a liquidity perspective, capital flows into the South Korean stock market are clearly no longer unilaterally upward. Data shows that BlackRock's iShares MSCI South Korea ETF, the largest ETF tracking South Korean equities, recorded a record net outflow of $970 million last week, while triple-leveraged long products saw $240 million in outflows during the same period. Furthermore, foreign investors have net sold $11.5 billion in South Korean stocks since May.

The greatest danger for the South Korean stock market currently is not a lack of bulls, but rather that too many people assume it will continue to rise. While the AI narrative, semiconductor earnings recovery, foreign capital inflows, and policy reforms have provided strong fundamental and sentiment support for the KOSPI, the index's surge from 7,000 to nearly 8,000 in less than two weeks—coupled with core weights being highly concentrated in a few tech stocks—means that any loss of momentum could cause the market to pivot quickly into a collective profit-taking mode.

History has repeatedly proven that the most dangerous time for a bull market is often not when no one believes in it, but when almost everyone does.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.