Looking At: South Korea’s Tech Trade

Estimated reading time: 6 minutes

Small Bark, Big Bite

Could a bear market in South Korea be an indicator of a looming bear market in the U.S.? 

South Korea’s economy, with a GDP of nearly $2 trillion, is about 1/16th the size of the U.S. economy. Yet because South Korea is a leading exporter of semiconductors — particularly memory chips — the ETF that tracks memory companies (ticker: DRAM) has a 51% weight to South Korea vs. only a 38% weight to the U.S. 

With South Korean technology companies wielding an undeniable influence on the AI theme, investors are increasingly nervous about recent volatility in its markets. 

On July 3, the KOSPI Index, the benchmark for South Korean stocks, entered a bear market (drawdown of 20% or more) after only 10 trading days. Most of the decline was driven by just two memory chip companies that make up 53% of the index, Samsung and SK Hynix. Even though the KOSPI’s year-to-date gains are still robust  — it was up 116% through late June — the swiftness of the unwind is feeding concerns of a possible global AI stock meltdown, with U.S. tech companies also suffering.

Markets Follow Earnings

The idea that markets follow earnings is one of the oldest and most widely accepted truths in investing, but it comes with an asterisk: It’s only true over longer-term periods. In the short-term, markets follow momentum, and the momentum in semiconductor stocks hit a wall in early July. The good news is, earnings did not. 

We track the relationship between South Korean exports and S&P 500 earnings growth, and the chart below shows their strong correlation. The connection seems peculiar until you consider that today’s bull market is heavily reliant on the AI theme, the AI theme is heavily reliant on semiconductor and hyperscaler stocks, and those stocks are heavily reliant on South Korea’s memory chip industry.

To put it simply, a rise in South Korean exports — which is dominated by semiconductors — typically suggests a subsequent rise in forward earnings of the S&P — which are driven in large part by technology companies.

And since South Korean export growth recently hit its highest level since the 1970s, it suggests S&P earnings growth has quite a bit more upside from here.

Even though this is good news, markets don’t react in a linear fashion. They tend to cue more off of the trajectory of growth rather than the growth itself. 

Said another way, despite growth being incredibly strong, the pace of growth is not likely to keep up at the same clip forever, and markets will price that in ahead of time. This is what we believe is happening right now.

IPO-ish

Adding to the news flow out of South Korea is the expected listing of SK Hynix as an American depositary receipt (ADR) on Friday. The size of the equity offering is notable, and will add to mounting concerns that there may not be enough investor demand to soak up the growing supply of AI stocks. This is likely having an impact on market volatility as well. 

The concerns are valid — Earnings and capex growth cannot persist at this rate into perpetuity, and if equity supply floods the market too quickly, it could drive prices down without adequate investor demand. In the near-term, both of these forces — along with geopolitical risks and macro forces — are likely to weigh on stocks.

Back to the initial question about whether a bear market in South Korea suggests a looming bear market in the U.S. Our answer is no. A decline in the rate of growth may cause some industries to reprice a bit, but earnings growth is still intact and should buoy investor sentiment in drawdowns. 

That’s not to say there won’t be drawdowns… There almost certainly will. But they don’t all turn into sweeping bear markets. Many of them serve as resets or even buying opportunities.

Each year, investors come out learning more about a topic that wasn’t on their reading radar on Jan 1. South Korea’s influence on global technology stocks is one of those topics for 2026. Despite the dominant narrative being about U.S. technology companies, some of the most interesting forces and opportunities may lie outside our borders. 

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