AI Stocks Trigger Record Market Volatility Across South Korea, Taiwan and Japan

Emerging markets get a hard lesson in tech hype

LONDON, Aug 6 (Reuters) - A few years ago, when almost every bank research note seemed to focus on soaring U.S. tech stocks, veteran emerging market fund manager Carlos von Hardenberg was struggling to get investors interested in anything else. Not any more. Now the AI boom has lit a rocket under the South Korean and Taiwanese firms that dominate high-tech memory chip making and, as of this year, the global EM stock indexes (.MSCIEF), opens new tab that have emerged from Wall Street's shadow. "Investors would say they were only interested in the U.S. and Magnificent Seven, and this is all you need because they were doing so well," said Hardenberg, who co-founded MCP Emerging Markets in 2018 alongside pioneering EM bull Mark Mobius. "Now this year, everything turned the other way around." But riding the AI boom has come at a cost. Since late June extreme volatility has taken hold, almost as if investors suddenly got altitude sickness. South Korea's KOSPI index (.KS11), opens new tab, which had doubled in value on the back of even bigger gains for Samsung Electronics (005930.KS), opens new tab and SK Hynix (000660.KS), opens new tab, ripped back 40% in just six weeks on a mix of concerns and curbs. Taiwan's ⁠TSMC (2330.TW), opens new tab, by far the biggest company in the EM stock universe, fell almost 14%. It sent volatility in South Korea (.KSVKOSPI), opens new tab skyrocketing and even for MSCI's $1.8 trillion EM benchmark, which contains more than 1,175 companies from 24 different countries, it surpassed the peaks of the COVID pandemic. (.VXEEM), opens new tab "The clients that we speak to, the institutional clients, are struggling with the level of volatility in Korea at the moment," said William Bratton, head of cash equity research for APAC at BNP Paribas. "To the point that they think that any sort of fundamental positive earnings story that may exist -- and we believe does exist -- is not worth pursuing at this point." CAREFUL WHAT YOU WISH FOR Korea and Taiwan are only still classed as EMs by MSCI for the technical reason that it can be difficult for international investors to trade their currencies. For some the risk of the recent mayhem is that all those old longings for some Mag 7-style excitement in EM become a classic case of "careful what you wish for". Just nine companies -- mostly the big Taiwanese and Korean tech firms, plus Alibaba and Tencent in China -- now account for more than 40% of MSCI EM, opens new tab, making it even more top heavy than the U.S. index, opens new tab. The Korean market's swings have even been ⁠larger than cryptocurrency bitcoin's this year (.BVIV), opens new tab, while the recent rout saw the most dramatic drop in the MSCI EM index's "liquidity factor" ever -- a result, the firm's chief research officer says, of investors moving away from the shares that had been surging. "What we're seeing is that emerging markets, which people used to look to as a source of diversification, because of the emergence and importance of these extremely large AI-related, particularly AI hardware-related companies, are not really a source of diversification anymore," MSCI's research head Ashley Lester said. "They're right in the centre of the AI boom." RIDE THE VOLATILITY Ji Young Park, a portfolio manager at Europe's biggest fund manager Amundi, said she had ⁠started scaling back some of her exposure before the turbulence kicked off, but that the selloff had still been costly. "I think in the last month there have been six or seven circuit breakers (on the Korean stock market), so it tells you just how volatile it has been," Park said. While giant lurches aren't necessarily a limiting factor for her fund, they do cause caution. "That's not the kind of investor that I am because I'm trying to buy ⁠a stock over five years," Park added. "And I quite like to sleep at night." UBP technology portfolio manager, Dimitri Kallianiotis, said some of his private bank clients have been spooked too, although his advice has been not to panic. LSEG data shows that the too-big-too-fast factor meant international investors pulled money out of Asia-ex China share markets faster than during any six months going back to at least 2010 in ⁠the first half of the year. South Korea and Taiwan bore the brunt, shedding over $100 billion and $44 billion respectively, according to JPMorgan, as rules designed to prevent funds holding too much of any one stock saw investors cash in some of the respective 500% and 1,100% 12-month gains on Samsung and SK Hynix. "Ride the volatility and try to avoid the overhyped names," UBP's Kallianiotis said. "If you are not invested in the tempest days, you won't be there for the rebound." Additional reporting by Ankur Banerjee in Singapore; editing by Dhara Ranasinghe and Aurora Ellis Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * Artificial Intelligence Marc Jones Thomson Reuters Marc Jones is a senior global markets correspondent based in London with a focus on economics, central banks, policymakers, and crises. Previously he worked in Frankfurt covering the European Central Bank at the height of the euro zone turmoil, the UK companies desk during the initial phase of global financial crash. He started his Reuters career on the sports desk covering everything from soccer to cycling.

AI boom reshapes emerging markets, but surging volatility tests investor nerves

Artificial intelligence has powered a strong rally in emerging-market technology stocks, led by semiconductor giants in South Korea and Taiwan. However, soaring valuations have triggered sharp volatility, foreign investor outflows and concentration risks. Despite recent corrections, investors remain optimistic about the long-term AI-driven growth story, according to Reuters. The artificial intelligence-driven rally that has transformed global equity markets is also reshaping emerging markets, with technology heavyweights in South Korea and Taiwan taking center stage. According to Reuters, companies linked to AI hardware and memory chips have helped emerging market (EM) equities step out of the shadow of Wall Street's dominant technology stocks, although the sharp gains have also brought heightened volatility. For years, many investors concentrated on U.S. technology giants, particularly the so-called "Magnificent Seven," leaving emerging markets with limited attention. Reuters reported that this trend has shifted in 2026 as AI-related demand boosted South Korean memory-chip makers and Taiwan's semiconductor leaders, driving strong performances in EM stock indexes. US MarketsPowered By As on 06 Aug 2026, 01:30 AM IST S&P 500 Top Gainers Charles River260.72(11.36%) Intl Flavors & Fragrances88.07(8.88%) Assurant301.57(7.20%) Newmont104.29(6.71%) Gainers" S&P 500 Top Losers Insulet133.26(-20.12%) DaVita188.69(-17.24%) CDW140.10(-9.03%) Coterra Energy32.56(-8.62%) Losers" AI fuels emerging market resurgence The renewed enthusiasm has been powered largely by semiconductor manufacturers essential to AI infrastructure. South Korean firms such as Samsung Electronics and SK Hynix, alongside Taiwan Semiconductor Manufacturing Co. (TSMC), have emerged as key beneficiaries of soaring demand for AI chips. Reuters reported that the rally helped South Korea's KOSPI index nearly double in value before sentiment reversed sharply in recent weeks. Taiwan's TSMC, the largest company in the MSCI Emerging Markets Index, also came under pressure as investors reassessed valuations. Veteran emerging markets fund manager Carlos von Hardenberg, co-founder of MCP Emerging Markets, told Reuters that investor interest has swung dramatically from an overwhelming focus on U.S. technology stocks to renewed enthusiasm for emerging-market AI leaders. Volatility replaces optimism The rapid gains have been followed by an equally dramatic rise in market volatility. According to Reuters, South Korea's KOSPI index lost around 40% in just six weeks after concerns over regulations and investor positioning triggered heavy selling. TSMC also suffered a double-digit decline during the correction. The turbulence has been significant enough that volatility in MSCI's $1.8 trillion Emerging Markets Index exceeded levels seen during the COVID-19 pandemic, Reuters reported. William Bratton, head of cash equity research for Asia-Pacific at BNP Paribas, told Reuters that institutional investors have become increasingly cautious toward South Korea despite strong corporate earnings, with many preferring to stay on the sidelines until volatility subsides. Concentration risk grows The AI boom has also increased concentration risk within emerging markets. Reuters reported that just nine companies -- primarily major technology firms from Taiwan and South Korea, along with Chinese internet giants Alibaba and Tencent -- now account for more than 40% of the MSCI Emerging Markets Index. This concentration has reduced the diversification benefits traditionally associated with emerging-market investing. Ashley Lester, MSCI's chief research officer, told Reuters that emerging markets are now closely tied to the global AI investment cycle because of the growing dominance of large AI-related hardware companies. Investors remain cautious Portfolio managers are adjusting their strategies amid the heightened uncertainty. Reuters reported that Amundi portfolio manager Ji Young Park had already trimmed some of her exposure before the market turbulence intensified, although the correction still affected performance. She noted that repeated circuit breakers in the South Korean market highlighted the extreme volatility. Meanwhile, UBP technology portfolio manager Dimitri Kallianiotis told Reuters that although some clients have become nervous, investors should avoid reacting emotionally to short-term market swings. Foreign investors pull back International investors have also reduced exposure to Asian equity markets. According to Reuters, data from LSEG showed that overseas investors withdrew money from Asia excluding China at the fastest pace for any first half of the year since at least 2010. Reuters, citing JPMorgan estimates, reported that South Korea experienced foreign outflows exceeding $100 billion, while Taiwan saw withdrawals of more than $44 billion. The selling was partly driven by portfolio rules limiting exposure to individual stocks after Samsung Electronics and SK Hynix posted extraordinary gains over the previous year. Despite the recent correction, many investors continue to believe the long-term AI investment theme remains intact, though the experience has highlighted that emerging markets are increasingly exposed to the same technology-driven volatility that has defined global equity markets.

Global Market: Asian multi-strategy hedge funds hit by AI stock rout in July

Major Asian multi-strategy hedge funds suffered sharp losses in July 2026 as an artificial intelligence and tech stock selloff erased early-year gains. Declines across Japan, South Korea, and China tech shares dragged platform funds lower, though diversification helped them outperform pure stock-picking peers during the market rout. Some of Asia's largest multi-strategy hedge funds posted their steepest monthly losses of the year in July as a sharp selloff in artificial intelligence-linked stocks across Japan, South Korea and China wiped out gains built during the first half of 2026, according to Reuters, citing sources familiar with the funds' performance. The decline came as investor sentiment towards AI-related companies weakened amid concerns over technology spending and rising geopolitical tensions in the Middle East. The resulting selloff in semiconductor stocks hit major Asian chipmakers, reversing one of the year's strongest investment themes. US MarketsPowered By As on 06 Aug 2026, 01:30 AM IST S&P 500 Top Gainers Charles River260.72(11.36%) Intl Flavors & Fragrances88.07(8.88%) Assurant301.57(7.20%) Newmont104.29(6.71%) Gainers" S&P 500 Top Losers Insulet133.26(-20.12%) DaVita188.69(-17.24%) CDW140.10(-9.03%) Coterra Energy32.56(-8.62%) Losers" AI winners turn into biggest drags According to Reuters, positions that had driven strong returns earlier in the year became the primary source of losses in July. Semiconductor stocks, which had benefited from the global AI boom, came under intense pressure as investors reassessed earnings expectations and exposure to the sector. Despite the setback, multi-strategy hedge funds generally outperformed the broader Asian hedge fund industry. Reuters reported that several of the region's largest platform funds recorded monthly declines ranging from 3% to 9%. By comparison, Goldman Sachs estimated that Asia's primary stock-picking hedge funds lost an average of 15.2% during July, marking the worst monthly performance on record for the segment. Why multi-strategy funds matter Multi-strategy platform funds are designed to reduce volatility by allocating capital across multiple investment teams and asset classes, including equities, fixed income, macro strategies and commodities. Their diversified approach typically aims to generate steady returns with limited dependence on overall market direction. As a result, investors consider a monthly loss exceeding 5% to be significant for these funds, highlighting the severity of July's market correction. Polymer Capital sees strong annual gains narrow Hong Kong-based Polymer Capital Management, one of Asia's top-performing multi-strategy funds during the first half of the year, was among those affected. According to Reuters, the firm, which manages more than $6 billion in assets, lost 6.9% in July, reducing its year-to-date gain to 11.5%. Sources told Reuters that part of the decline stemmed from the firm's equity exposure in Japan, where markets came under heavy selling pressure. Regional markets face sharp declines Asian equity markets endured steep losses during July. South Korea's benchmark Kospi index plunged 22% over the month, while Japan's Nikkei 225 declined 8%, reflecting the broad retreat from technology and semiconductor shares. The market weakness weighed on hedge funds with significant exposure to these regions. Other major funds also report losses Reuters reported that Singapore-based Dymon Asia's $9 billion multi-strategy fund fell 6.5% during July, trimming its gains for the January to July period to 7.5%. Singapore-based Arrowpoint Investment Partners posted a comparatively modest decline of 2.6%, while Hong Kong-headquartered Pinpoint Asset Management's flagship multi-strategy fund fell 9% during the month, according to sources cited by Reuters. Risk management helped limit losses Arrowpoint's comparatively resilient performance was aided by a decision to reduce overall portfolio risk before the July market downturn. According to Reuters, the firm identified signs of excessive leverage building across markets, particularly in South Korea and Taiwan. Sources said banks had become increasingly reluctant to provide additional leverage for certain positions, prompting the fund to lower exposure before volatility intensified. That move helped cushion the fund's performance during one of the toughest months of the year for Asian hedge funds. Divergence in performance may continue Market participants told Reuters that performance differences across hedge funds are likely to persist as AI-driven market shifts and a prolonged high-interest-rate environment continue to create winners and losers. Managers capable of adapting quickly to changing market conditions and controlling portfolio risk may be better positioned, while concentrated bets on technology and AI-related sectors could remain vulnerable to sharp swings in investor sentiment.

Explained: How AI-led Kospi, Nikkei selloff sparked record 15% drawdown in Asian funds in July

Asia's major multi-strategy funds suffered sharp July losses as an AI-linked stock selloff across Japan, South Korea and China erased much of their 2026 gains. Concerns over AI spending and Middle East tensions hit semiconductor stocks, with some funds losing 3%-9%, while Goldman Sachs estimated a record 15.2% monthly decline for Asia's primary stock-picking hedge funds. Some of Asia's largest multi-strategy funds suffered their steepest drawdowns of the year in July as a sharp selloff in artificial intelligence-linked stocks across Japan, South Korea and China wiped out a sizable portion of the gains accumulated in the first half of 2026. The same positions that had powered returns earlier this year became a drag in July, as rising concerns over AI spending and the Middle East conflict triggered a broad selloff in semiconductor stocks, hitting some of Asia's biggest chipmakers. US MarketsPowered By As on 06 Aug 2026, 01:30 AM IST S&P 500 Top Gainers Charles River260.72(11.36%) Intl Flavors & Fragrances88.07(8.88%) Assurant301.57(7.20%) Newmont104.29(6.71%) Gainers" S&P 500 Top Losers Insulet133.26(-20.12%) DaVita188.69(-17.24%) CDW140.10(-9.03%) Coterra Energy32.56(-8.62%) Losers" According to a Reuters report, some of the region's largest multi-strategy platforms posted monthly losses of 3% to 9%, while Goldman Sachs estimated that Asia's primary stock-picking hedge funds fell 15.2% in July, marking their steepest monthly decline on record. Among individual funds, Hong Kong-based Polymer Capital Management, one of the best-performing Asia-focused multi-strategy funds in the first half, lost 6.9% in July, trimming its year-to-date gain to 11.5%, Reuters report added. The fund manages more than $6 billion in assets. Also read: South Korea's Kospi tumbles 5% after 2-day rally, angry retail investors vow not to invest again It was a rough month for AI-focused markets as South Korea's benchmark Kospi Index tumbled 22% in July, while Japan's Nikkei 225 fell 8%. What's troubling investors?At the heart of the selloff is overheating. AI and semiconductor stocks, the undisputed market darlings of 2025 and 2026, have suddenly come under pressure as concerns grow that the rally may have run ahead of fundamentals. Fresh concerns over the scale of artificial intelligence spending have added to the pressure on semiconductor stock. Investors are increasingly questioning whether companies investing billions of dollars in artificial intelligence will generate sufficient returns to justify the spending. More to come?Goldman Sachs, however, struck a more constructive note. The brokerage said the recent selloff in South Korean semiconductor stocks had been amplified by the unwinding of positions in newly launched exchange-traded funds that are heavily concentrated in one or two stocks. It added that the underlying semiconductor cycle remains fundamentally strong. Last month, SK Hynix Chief Executive Kwak Noh-jung expected the global memory industry to face its worst-ever supply shortage in 2027. He said demand is likely to remain above the company's production capacity well beyond 2030 despite aggressive expansion plans. South Korea's semiconductor industry continues to enjoy strong long-term demand, but elevated leverage has made the market more vulnerable to sharp corrections. Bloomberg quoted Hebe Chen, senior market analyst at Vantage Global Prime in Sydney, as saying that the country's semiconductor story is supported by genuine structural demand, but excessive leverage has turned it into a more fragile market trade. "The double-edged sword is now cutting the other way and leverage is making the fall every bit as powerful as the climb," Chen said. South Korea's government has meanwhile stepped up efforts to cushion the impact of the market slump. The authorities are reviewing market stabilisation measures, including possible changes to regulations governing single-stock leveraged ETFs. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)