Kospi Re-Enters Bull Market After 25% Rebound; Wall Street Eyes Hedge Fund FOMO as Next Catalyst

The Kospi has entered a technical bull market after rebounding more than 20% from its late-July low in 10 days. Fears of additional Federal Reserve rate hikes have eased, while a string of developments on AI monetization and the memory-chip cycle has helped calm investor concerns. With volatility in South Korea’s benchmark index also subsiding, Wall Street is watching for systematic buying and a possible return of hedge funds that missed the rally.

Foreign Investors Return, Buy 8.2093 Trillion Won ($5.93 Billion) in Four Days

On Aug. 14, the Kospi closed up 2.41% at 6,977.34. Foreign investors led the advance with net purchases of 3 trillion won ($2.17 billion). The index climbed as high as 7,010 in early trading before paring gains on profit-taking by retail and institutional investors. It was the first time the Kospi traded above 7,000 intraday since July 24, 15 trading days earlier.

The Kosdaq, which had turned negative earlier in the session, closed up 0.38% at 864.64, supported by retail buying.

Overnight developments in the US also buoyed Korean equities. July producer prices were unchanged from the previous month, easing concern that the Fed could move quickly to raise rates again. In interest-rate futures markets, the probability of a September Fed hike fell to 33% from 58% a month earlier.

AI-related news added to the momentum. At its investor day, SanDisk said it could still achieve an 80% gross margin even if NAND prices fall to their lowest level, thanks to price-protection clauses in long-term supply agreements. The company also unveiled long-term sales and margin guidance that exceeded market expectations. It said it would use 100% of free cash flow remaining after reinvestment for share buybacks, sending the stock up 14%. Samsung Electronics and SK Hynix each gained about 3%.

Investors were also encouraged by reports that LG Electronics and Nvidia are fleshing out a “physical AI alliance” spanning robots, autonomous vehicles and AI factories. News that Anthropic and OpenAI are seeing surging annualized revenue and valuations also helped ease concern over AI monetization.

The Kospi has now risen for five straight sessions and is up 25% from its July 30 low. The most notable shift in this rebound has been foreign buying. According to the Korea Exchange, foreign investors were net buyers of 8.2093 trillion won ($5.93 billion) on the main board from Aug. 11 through Aug. 14. Goldman Sachs’s sales desk estimated that about 90% of those purchases were concentrated in technology stocks. Foreign selling that amplified last month’s slide has, for now, reversed.

Wall Street Says More Upside Remains

Wall Street sees further room for the Kospi to climb. One reason is that July’s selloff appears to have flushed out much of the leverage and crowded positioning that had built up in the market. JPMorgan said Korean brokerages are expanding margin-trading limits again, while foreign investors are also increasing swap limits that allow exposure to Korean stocks through derivatives. That points to the possibility of a new round of leveraged buying after the recent unwind.

A more decisive factor is the normalization in volatility. In May and June, leverage and speculative demand unusually drove both the Kospi and volatility higher at the same time. This month, however, market swings have eased quickly. JPMorgan said systematic funds that automatically increase equity exposure as volatility falls could start flowing back in. The bank added that gains are likely to come more slowly than in the past because participation by leveraged ETF and derivatives investors has diminished.

Wall Street is also discussing the possibility of hedge funds chasing the rally. Goldman Sachs said hedge funds sharply reduced long positions in Korean equities during July’s selloff but were slow to rebuild exposure during the rebound. If the index extends its gains, fear of missing out could trigger delayed buying from funds that have lagged the move.

Bin Nan-sae, Hankyung.com reporter binthere@hankyung.com