Retail euphoria drives Kospi higher, brushing off Buffett and overheating warnings

When Warren Buffett warned earlier in May that speculation was increasingly driving global financial markets, many Korean retail investors had a ready rebuttal: The legendary investor’s playbook no longer works in a technology-fueled market racing higher on AI optimism and chip stocks. Instead of heeding his warning, retail traders have piled further into Korean equities, betting that the Kospi still has much further to run.

The rally has unleashed a fresh wave of confidence and fear of missing out across Korea, luring burned retail investors back and tempting even noninvestors into the market, despite mounting concerns that stock prices are overheating. 

After years of losses from leveraged bets, a 35-year-old Seoul-based freelance worker swore off stocks, convinced her family would never return to the market. Even as the market rallied steadily, she held back. But with chip stocks surging further this month, her resolve has started to crack.

“With chip stocks soaring, it’s hard not to think about the gains I could have made,” she said. “I’m considering getting back in because it feels like everyone else is investing but me — and I don’t want to be the only one left out.”

The fear of missing out cuts across generations.

“Whenever I meet friends or turn on the news, the topic is always about stocks and Kospi these days, so I’ve basically stopped watching the news,” said a 67-year-old woman surnamed Kim, who does not invest in stocks. “It makes me feel like I’m missing out and should be investing, too. Investing always comes with the risk of losing money, so I think it only makes sense if you have a decent amount of spare cash. But right now, it feels like everyone is piling in.” 

Even as some analysts warn that the Kospi’s blistering rally shows signs of overheating after an 85 percent gain year to date, many retail investors — gripped by anxiety over being left behind — are betting the market still has much further to run. They are by far the largest net buyers on Kospi this year, scooping up roughly 40 trillion won ($27 billion) so far this year, while institutional investors net purchased around 23 trillion won and foreign investors net sold more than 75 trillion won, according to the Korea Exchange. The number of active stock trading accounts also jumped 18 percent on year to 1.06 million as of Wednesday.

Much of that enthusiasm is tied to the chip sector, which delivered record earnings in the first quarter and is expected to keep growing as global tech giants pour billions into AI infrastructure. Such expectations have led shares of chip giants SK hynix and Samsung Electronics to shoot up 190 percent and 130 percent, respectively, this year.

Backed by the strong excitement, the Kospi became the world’s seventh-largest market on May 7, overtaking Canada in just 10 days after passing Britain.

Confidence outpaces caution in Kospi

Retail investors have long underestimated the Kospi, treating it as a short-term investment and instead flocking to the U.S. market. But sentiment has shifted with the semiconductor upcycle, as Samsung Electronics and SK hynix posted record earnings in the first quarter. 

A 33-year-old office worker in Seoul surnamed Cho is one such investor. A longtime skeptic of Korean equities, she has insisted on U.S. stocks, buying a fixed amount each month, as she saw limited long-term growth potential in the Kospi. But she has begun expanding into Korean stocks this year. 

“I still invest more in U.S. equities, but I’ve started to gain confidence in Korean equities from the latest rally,” she said. “While I’m concerned about volatility, I believe the index is undervalued, and I no longer think a Kospi at 10,000 points is impossible.”

Increasingly bullish forecasts from Wall Street have contributed to such belief, as a recent report from JP Morgan said the Kospi could climb as high as 10,000 points under a bull-case scenario, saying that it remains appropriate to stay positioned for further upside movement and not pre-emptively anticipate an end to the AI-driven memory momentum.

“A strong sense of confidence and fear of missing out are playing an extremely powerful role in investor behavior right now,” said Kim Yong-jin, a professor of business administration at Sogang University. “Korea is one of the countries where herd mentality is especially strong, and this rally reflects that.”

Kim explained that the trading pattern has shifted from the past, when retail investors were often left absorbing losses after foreign investors sold and exited — buying at the peak and bearing the downside. This month offers a clear example of that shift. Through Thursday, retail investors were net buyers of the index while foreign investors were net sellers, even as the index surged 15 percent. Retail investors absorbed much of the market supply, helping support the rally.

“That shift has created a sense of control and the perception among retail investors that they can now move the market,” Kim added.

Boom or bubble?

While the Kospi is seen as undervalued in terms of statistical metrics such as the price-to-earnings ratio, some analysts are raising concerns about signs of extreme overheating.

A rare “hold” rating was issued for SK hynix by BNK Securities in late April.

Operating profit for the chipmaker is projected to increase further in the second quarter, but a slowdown is expected in the second half of the year, according to Lee Min-hee, who wrote the report.

The slowdown “reflects the later stage of the inference AI cycle that began last year, as well as the growing share of HBM4 sales, which carry relatively lower profitability,” Lee said. “The upward trend in hyperscalers’ AI capital expenditure has also begun to lose momentum since March, while the gap between spot and contract prices is narrowing, likely leading to a sharp slowdown in ASP [average selling price] increases.”

While hyperscalers’ combined spending commitment this year totals around $700 billion, a reduction in free cash flow may be straining further investment. The combined free cash flow of the four major hyperscalers — Amazon, Alphabet, Microsoft and Meta Platforms — is forecast to drop to roughly $4 billion in the third quarter, according to Wall Street estimates. That is far lower than the average of about $45 billion per quarter since the Covid-19 pandemic six years ago.

Concerns over fading momentum have also surfaced at other brokerages. IBK Securities on Tuesday warned that volatility could increase in August and September, as inflationary pressures and the possibility of central bank rate hikes weigh on corporate growth momentum, even as it raised its Kospi target range to 6,500 and then 9,000 points on expectations of expanding AI-driven momentum.

“If growth momentum begins to slow in the second half of 2026 and such concerns persist into 2027, profit-taking selling pressure could emerge across the broader equity market from the third quarter,” said Byun Jun-ho, an analyst at IBK Securities. He added that weakening earnings momentum for Samsung Electronics and SK hynix next year amid a potential slowdown in Big Tech AI capital expenditure growth could begin to be reflected in share prices from the fall.

As one sign of that trend, Byun pointed to the Cyclical Component of the Composite Leading Index, which is designed to predict turning points in the business cycle and includes the Kospi as one of its components. The index could near a peak in the third quarter after reaching 103.5 in March, its highest level in 24 years.

Some, however, say the move reflects market differentiation rather than overheating.

Nearly 65 percent of the Kospi’s roughly 1.06 quadrillion won increase in market capitalization between April 15 and May 6 was driven by Samsung Electronics and SK hynix, as the benchmark index surged past the 6,000 mark and climbed above 7,000.

“The index has climbed very quickly due to large-cap names that account for more than 40 percent of its weight,” said Yoonsoo Lee, a professor at Seoul National University’s Graduate School of International Studies. “Their gains have been driven by perceived upside potential, while gains elsewhere have been far more subdued. The rally should therefore be seen as highly differentiated rather than overheated.”

BY JIN MIN-JI, PARK EUN-JEE [[email protected]]