Citi revised its stance on South Korea to neutral after maintaining an overweight position for the past year. This reflects a broader move to dial back exposure to the artificial intelligence sector as sharp price swings in chip stocks have unsettled the country’s equity market.
The benchmark Kospi index, which has led global equity performance in 2026 amid fervent interest in AI-related trades, has faced intense turbulence. The surge in retail trading activity, particularly in single-stock leveraged ETFs, as well as valuation concerns, has contributed to recent instability.
South Korea’s regulators responded to the turbulence by imposing a temporary suspension on new single-stock leveraged ETF listings last Thursday. The Financial Services Commission’s intervention, targeting funds linked to major names such as Samsung Electronics and SK Hynix, aims to rein in volatility in the nation’s $4.1 trillion equity market. The pause on new ETF products will last until markets show greater stability.
Additionally, authorities are set to increase the minimum deposit for leveraged ETF investors from 10 million won to 30 million won, beginning August 5. This policy was introduced after discussions among the nation’s financial authorities and was prompted by directives from President Lee Jae Myung as policymakers seek to restore stability to one of the most turbulent stock markets in 2026.
Despite expectations among clients for broader market performance in the latter half of 2026, Citi remains cautious and is refraining from a complete exit from technology within its emerging market allocations. The investment bank upgraded China to overweight and kept Taiwan at overweight as well, expressing a continued favorable long-term outlook on AI.
Yardeni Research also revised its emerging markets view to market weight, citing pressures from higher oil prices, a firming U.S. dollar driven by the Federal Reserve’s hawkish stance, and signs of reduced momentum in AI-driven trades in both South Korea and Taiwan.
On Monday (July 20), the Kospi index closed the trading session lower by 4.46% to 6,516.27 points. Shares of SK Hynix were down 4.23% at 1,764,000 KRW, while Samsung Electronics declined 4.31% to 244,000 KRW.
