London, 30 September 2026 — EBM Newsdesk Analysis — By Brad Adams
On Wednesday, 30 September, South Korea’s Kospi index closed out the quarter as the worst-performing equity market in the world. It fell 18.8% over the three months, dragged down by a sell-off in memory-chip stocks that began in July as the year’s most popular AI trades were liquidated. The twist is that the Kospi is still up about 60% for the year, which keeps it among the best-performing markets worldwide. Korea is not suffering because the AI boom ended. It is suffering because it bet almost everything on it.
That matters well beyond Seoul. Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management, says the Korean market has become a proxy for how investors see the huge capital spending going into AI infrastructure. When the Kospi falls this hard, it is a signal about the whole trade, including the US tech giants and the European pension funds that own them through global index trackers.
Two Companies, One Market
The problem is concentration. Samsung and SK Hynix now make up roughly half the Kospi’s total weight, up from about a quarter at the end of last year. Both make memory chips, the high-bandwidth kind that sits next to Nvidia’s processors in every AI data centre.
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SubscribeWhen those two rise, Korea rises. Earlier this year Korea’s stock market grew larger than Germany’s and then France’s. When they fall, there is nothing to cushion the drop. Even record profits have not been enough. Samsung reported a 19-fold jump in profit, and its shares still fell 7%.
How a Trade Became a Crash
Leverage turned a correction into a rout. Situational Awareness, the hedge fund run by former OpenAI researcher Leopold Aschenbrenner, had a heavily leveraged bet on Korean memory-chip stocks, and the collapse of that position coincided with a surge in retail buying of leveraged single-stock ETFs. When prices turned, borrowed money had to be repaid, which forced more selling.
Korea is not alone. China’s AI hardware stocks are having their worst quarter as the rally unwinds, after a run that at one point reached 75% in three months. The CSI 300, China’s blue-chip index, fell roughly 9% to 10% in July alone, its worst month since January 2016.
The US has held up better. The S&P 500 and the Nasdaq were both up about 2% for the quarter going into the final day. That gap is the real story. The companies that spend on AI, such as Microsoft, Meta and Alphabet, are diversified. The companies that sell to them, such as memory makers, chip designers and hardware suppliers, depend on that spending staying high forever.
The Cracks in the Story
The first crack is price. Memory has become so expensive that Apple and Microsoft have raised prices on consumer products to cover it. Buyers will not pay rising costs indefinitely.
The second is money. The AI spending boom is now so large that companies are borrowing to fund it. SpaceX went back to the bond market for $20bn days after listing. Anthropic, meanwhile, has told would-be investors in its IPO filing that it lost almost $42bn last year. Fresh pressure on Korean stocks is now coming from the bond market, as global appetite for government debt weakens and yields rise.
For Europe, the exposure is indirect but real. Europe does not own the memory makers. It supplies the machines that make the chips. ASML and its suppliers are paid when capital spending rises and hurt when it slows.
The Verdict
This is not the end of the AI trade. It is the end of the idea that it only goes up. Korea’s quarter is a lesson in what happens when a national market becomes a single bet: spectacular on the way up, brutal on the way down. The 60% annual gain still stands, but anyone who bought in June is sitting on a painful loss. The next test is whether AI spenders keep writing cheques while their borrowing costs climb. If they slow, Seoul will feel it first, and Europe’s chip-equipment makers soon after.
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