After the investor frenzy subsides, the Korean stock market falls into a stalemate! Trading volume drops to a yearly low, struggling to hold the 7,000-point threshold

According to Zhihui Finance APP, as investor enthusiasm gradually diminishes, the trading volume on the Korean stock market has fallen to its lowest level this year, indicating that the AI-driven Korean stock market may struggle to return to previous highs. Data shows that the average daily trading volume of the Korea Composite Stock Price Index (Kospi) in September dropped to 20.6 trillion won (approximately $15 billion), the lowest level since 2026, and less than half of the market's trading volume peaks in May and June.

Earlier this year, the retail buying frenzy triggered by the AI boom propelled the Korean stock market to record highs. However, subsequent doubts about the actual returns that AI investments could generate led the Kospi index to retrace by 22% in July. Although the benchmark index later recovered some of its losses, it has consistently failed to remain above the critical 7000-point level.

Jason Minsang Kam, Head of Active Equity Management at Kyobo Life Insurance Co., stated, "Volatility needs to further decrease, and concerns about the chip cycle must also be eliminated" before overseas investors will return. He expects the Kospi index to remain range-bound for now.

Despite experiencing a significant pullback, the Kospi index has risen about 59% so far this year, remaining the best-performing major benchmark index globally. In addition to the boost from the AI boom, corporate stock buybacks have also supported the index. However, the Korean stock market still faces numerous headwinds. At the end of August, the Bank of Korea raised interest rates by 25 basis points to 3%, and market surveys indicate the central bank may raise rates by another 25 basis points in the fourth quarter. Additionally, the Federal Reserve's potential rate hikes could further pressure growth stocks.

Kang Songchul, an analyst at Eugene Investment & Securities, stated: "The vitality of the market is weakening. With domestic interest rates continuously rising, market funds have shifted towards interest-linked savings products because, by comparison, the stock market has become less attractive."

It is worth noting that on September 14, the Korean stock market officially entered the "8 PM closing" era. The extended trading hours mean that users who cannot trade during the day can continue to buy and sell stocks in the night session, and changes in overseas markets and major news are likely to be reflected in stock prices more promptly.

The Korea Exchange has extended after-hours trading to align with the global trend of major exchanges lengthening trading hours, making it more convenient for overseas investors to trade Korean stocks and thus strengthening the global competitiveness of Korea's capital market. This reform makes Korea the first major Asia-Pacific economy to offer such extensive night trading for its stock market.

However, there are also many concerns in the market, especially regarding liquidity and price volatility. Liquidity during nighttime sessions is much lower than during regular trading hours, so investors may face thinner trading volume, wider bid-ask spreads, and more dramatic price swings. At the same time, in the relatively illiquid night market, professional investment institutions with more advanced trading systems, algorithmic tools, and information-processing capabilities may have a distinct trading advantage over ordinary retail investors.

From a longer-term perspective, Jerry Chen, a senior analyst at Gain Capital Group US, believes extending trading hours helps international investors participate more efficiently in the Korean stock market, improving liquidity and efficiency. Young Jae Lee, a senior investment manager at Pictet Asset Management in London, also stated, "Investors with a stronger trading orientation and higher turnover rates, such as hedge funds, may participate more frequently in after-hours trading." However, some industry insiders caution that whether trading is active ultimately depends on the market's system and structure; extending trading hours does not create liquidity but merely redistributes liquidity.

For the Korean stock market, its outlook will depend on the contest between the sustainability of AI semiconductor profits and the fragility of market structure. On one hand, the profit logic based on the AI semiconductor super-cycle remains strong. The dominance of Samsung Electronics and SK Hynix in AI memory chips (especially HBM) is the most solid pillar of the Korean stock market. A record supply gap in memory chips is driving company profit forecasts significantly higher, with Goldman Sachs once predicting that Korean corporate profits will grow by 300% by 2026. Meanwhile, despite the index's large rise, valuations in the Korean market remain at historical lows and are still reasonable given the broad improvement in profitability.

On the other hand, the Korean stock market's performance in July and August revealed significant risks. In addition to extreme volatility and leverage events, a highly imbalanced market structure is also a risk factor facing the Korean stock market. Samsung Electronics and SK Hynix together account for about 50% of Kospi's total market capitalization, and as much as 72% of earnings weight. Such extreme concentration means that if global funds reassess AI trades, there is almost no buffer for the Korean market, and declines may be significantly amplified. Furthermore, single-stock leveraged ETFs launched at market highs have caused heavy losses among young retail investors (62% of margin call account holders are under 35), and some analysts believe that even if the AI fundamental outlook stays positive, investors may avoid the Korean market due to stability and regulatory issues.