One-day bounce or sign of deeper trouble? Foreign media call Korea's market 'bipolar'

After three consecutive days of severe losses, the Kospi staged a record rebound on Friday to close out July, prompting foreign media to say the Korean market was "trading between fear and euphoria overnight, as if suffering from bipolar disorder" — while offering sharply divided assessments of where the market goes from here.

US broadcaster CNBC reported Thursday (local time) that "South Korea's stock market capped a month of extreme volatility with a drastic reversal."

The Kospi had fallen roughly 40 percent from its closing high of 9,114.55 on June 22, enduring extreme volatility throughout July. On the final trading day of the month, Friday, it closed at 6,595.45 — up 1,001.89 points from the previous session, marking the largest single-day percentage gain in the index's history at 17.91 percent.

The surge came after semiconductor stocks jumped on US markets Friday night, drawing buying interest into the Kospi. Microsoft, Amazon and Meta all reported earnings that beat market expectations, rekindling confidence that AI infrastructure investment remains robust. That prompted foreign investors to buy beaten-down Korean shares at lower prices.

CNBC said investors were watching closely to see whether overseas buying would continue even after short-covering runs its course. The outcome will determine whether the sharp rebound marks the start of a genuine recovery or simply another violent swing in one of the world's most volatile markets, the network said.

Jung In-yoon, chief executive of Fibonacci Asset Management, told CNBC that "the Korean stock market is trading between fear and euphoria overnight, as if suffering from bipolar disorder," adding that "Saturday's rebound was the result of an overstretched short position snapping back sharply."

Khoon Goh, head of Asia research at Australia's ANZ Bank, said "the Kospi is trading like a meme stock or a cryptocurrency," adding that "this is not normal behavior for a benchmark index of a major economy."

Expert views on the Korean market's outlook are starkly divided. Some see semiconductor-related shares continuing to recover on the back of solid AI-driven demand, while others warn that excessive leverage could drag the market into another correction.

Rolf Bulk, a semiconductor analyst at Futurum Group, said the rebound reflected restored market confidence that the AI investment cycle remains intact, not any fundamental change in corporate performance. "Most of the forced selling appears to be over, and there are no signs that AI infrastructure buildout is slowing," he said, adding that he remained positive on the sustainability of the AI investment cycle.

Jung said he did not expect the rally to continue indefinitely, but added that "given how deeply pessimistic market positioning had become, there is room for the rebound to extend somewhat further, and the fundamentals of SK Hynix's AI memory chip business remain solid."

"The real test is whether foreign buying continues after short-covering ends," he added. "If foreign capital keeps flowing in, this rebound could evolve into a more sustainable recovery rather than just a technical bounce."

JPMorgan also said the deleveraging process that has battered the Korean market since mid-June is effectively in its final stages. With valuations compressed by the sharp selloff and most liquidation pressure now absorbed, the bank said the current environment looks attractive from a buying perspective.

JPMorgan strategists including Mixo Das said in a report that leveraged ETF liquidations were complete and hedge funds had finished roughly 90 percent of their deleveraging, bringing exposure down to manageable levels across the board.

Not all analysts, however, are sanguine about the rebound.

Paul Gambles, co-founder of MBMG Family Office Group, warned that the surge itself could be yet another extreme move in an unstable market.

"There will be many more days like this ahead," he said. "Asset prices being completely detached from fundamentals means there is an enormous amount of leverage built up in the market." He added that while the rally could prove to be a one-day relief bounce or extend a little longer, it should not be read as a sign that the risks surrounding the AI frenzy have disappeared.

Gambles said "excessive leverage combined with fragile investor sentiment could expose the market to a far deeper correction," adding that "while we cannot say for certain this is the start of a major crash, even if it isn't, it should be read as a signal that such a moment is likely not far off."