The canary of the AI bubble has just 'died'; authorities deflect responsibility, declaring 'no market rescue for now'.

【Answer 1】 From a technical perspective, the KOSPI correction has yet to show clear signs of ending. Although the index briefly broke below both the 50-day and 200-day moving averages during intraday trading—approaching the long-term trendline that has supported this rally—the RSI has fallen to its lowest level since April 2025, indicating the market has entered an oversold zone. Yet historical experience shows that oversold conditions do not necessarily signal an immediate bottom. A true market bottom is typically accompanied by more intense panic, surging trading volume, and a broad-based spike in volatility. Currently, however, the KOSPI Volatility Index’s response remains relatively muted—suggesting the market structure may not yet have undergone full cleansing. In other words, prices have clearly corrected, but whether the emotional ‘final leg down’ is complete remains uncertain. Leveraged-funding dilemma: KORU’s plunge reveals AI-trading risks Leveraged funds are amplifying downward pressure on the Korean market. The triple-leveraged ETF KORU, which tracks Korean equities, peaked near $64 in early June and has since plunged to around $14—a nearly 80% decline. For investors holding such products, the greatest risk lies not merely in index declines, but in the daily rebalancing mechanism inherent to leveraged ETFs—which erodes net asset value over time. These products track daily returns multiplied by a factor—not cumulative long-term returns. During prolonged, volatile downtrends, compounding effects continuously erode value. Even if the underlying index later recovers fully to its prior peak, the leveraged ETF may never recover proportionally. Leveraged capital that flooded into the AI trade is now becoming passive selling pressure amid the market’s decline. Korea’s ‘canary’ warning: The beginning of global AI-asset repricing? The key question now confronting markets is whether the collapse of Korean semiconductor stocks will spill over into global chip assets. Data shows that the KOSPI had previously outperformed the Philadelphia Semiconductor Index (SOX), making it one of the most aggressive proxies for the AI trade. Yet as the KOSPI falls back to current levels, SOX remains roughly 20% higher—revealing a pronounced divergence. If historical correlations reassert themselves, global semiconductor indices may still face further downside pressure. Of course, Korea’s market does not necessarily reflect the entire AI industry cycle. U.S. mega-cap tech firms’ AI capital expenditures, cloud-computing demand, and advanced-chip order flows remain the core fundamentals driving the sector. Yet from a capital-flow standpoint, Korea is emerging as a critical window for gauging whether AI-related trading has become overheated. If the AI boom continues to be justified by corporate earnings realization, this may simply be a healthy correction. But if investors begin reassessing the ROI timeline for AI investments, then Korea’s sharp volatility today may mark only the opening chapter of global AI-asset repricing. The ‘canary’ has fallen—now the market must determine whether this signals localized oxygen deprivation—or whether the entire mine is losing air. Korean government ‘defers market rescue,’ blaming markets; retail investors respond with sharp criticism According to South Korea’s JoongAng Daily, reporting on July 29, Kim Yong-beom—Director of the Presidential Policy Office, accompanying President Lee Chang-myung on a state visit to Brazil—stated that the government is closely monitoring market conditions, but that it has not yet reached the stage where activation of the Stock Market Stabilization Fund is warranted.

The canary of the AI bubble has just died…

【Answer 2】 In the coal-mining era, canaries were used to detect toxic gases early—when they fell, it signaled imminent danger. Today, the Korean stock market appears to be serving as the ‘canary’ in the ebbing tide of AI euphoria. As one of the most crowded markets in this AI-driven rally, Korea’s semiconductor sector was the first to suffer violent sell-offs. On July 28, the KOSPI plunged nearly 11% in a single day; SK Hynix, Samsung Electronics, and Japanese memory-chip giant Kioxia all breached key technical support levels. Meanwhile, the triple-leveraged ETF KORU dropped from its early-June peak of ~$64 to around $17—a cumulative decline exceeding 70%. Korea had previously been among the strongest beneficiaries of the global AI boom—memory chips, high-bandwidth memory (HBM), and AI infrastructure-related assets attracted concentrated capital inflows. Yet now, precisely these highly crowded, high-expectation assets are the first to be dumped by investors. Markets fear this may signify more than just a domestic correction—it could be an early signal that the AI trade is cooling off. Especially noteworthy is the fact that the KOSPI had led the Philadelphia Semiconductor Index (SOX) upward during this AI rally—and is now leading it downward. With this ‘canary’ having fallen, global investors are now re-examining a pivotal question: Are AI-related assets’ lofty valuations and sky-high expectations entering a phase of repricing? AI euphoria cools—Korea becomes the first domino to fall Since its June peak, the KOSPI has lost nearly 35% cumulatively; the latest wave of selling has further intensified market panic. During the earlier AI-infrastructure investment frenzy, Korean semiconductor firms ranked among the biggest beneficiaries. SK Hynix became a market darling amid the explosive demand for high-bandwidth memory (HBM), while Samsung Electronics rode rising expectations tied to AI server supply-chain expansion. But as risk appetite rapidly cooled, capital began fleeing. SK Hynix’s share price collapsed on heavy volume, breaking decisively below its critical 100-day moving average—a level held since May 2025. Samsung Electronics plunged 14% in a single session, simultaneously breaching both its 100-day moving average and long-term trendline. Markets worry this may not be an isolated correction—but rather the start of a broader diffusion of the AI-trade unwind, spreading from core assets to peripheral ones. Deteriorating technicals: The market has not yet seen true ‘capitulation’ From a technical standpoint, the KOSPI’s correction still shows no definitive sign of ending. The index has already broken below its 50-day moving average—and is now approaching its 200-day moving average and the long-term trendline underpinning this rally. Although the RSI has dipped to its lowest level since April 2025—indicating an oversold condition—historical precedent shows that oversold readings do not guarantee an immediate bottom.

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