KOSPI jumps 11.5% in week as hedge funds lag rally

KOSPI's 11.5% weekly surge has left hedge funds underweight, setting up a potential short squeeze.

South Korea's KOSPI jumped 11.5% this week to 6,977.94, its biggest gain in three months, ending a seven-week losing streak as chip stocks led a rebound.

"SanDisk's long-term growth potential and high profitability signals lifted semiconductor sentiment and drove Korean memory chip stocks higher," Lee Kyoung-min, an analyst at Daishin Securities, said.

Samsung Electronics rose 19% for the week and SK Hynix 16%, while Hyundai Motor climbed 8.24% and Kia 3.13% on Friday. Breadth was broad, with 677 of 906 stocks advancing. Foreign investors net bought about $1.2 billion of KOSPI shares this week, nearly all of it in technology, according to Goldman Sachs sales desk data.

The rebound, up more than 22% from a July 30 low after a near-31% slide, has outpaced institutional positioning. Hedge funds cut Korean equity exposure during the decline and have not rebuilt it, leaving a gap that could force underweight managers to chase gains and extend the rally.

The rally's engine is memory chips. SanDisk's announcement that it will return excess cash to shareholders after completing its investment business pushed its stock up more than 13% overnight and lifted Asian memory names. SK Group Chairman Chey Tae-won said on Aug. 14 the company is weighing a joint-venture model for new memory plants to share capital expenditure and overcapacity risk, and warned that tight supply could intensify in 2027.

Foreign capital is returning. Data show foreign investors net bought roughly $2 billion of South Korean stocks this week, on track for the largest weekly inflow since early April if Friday's buying holds. That follows cumulative net outflows exceeding $100 billion in the first months of the year as leveraged AI and semiconductor positions unwound.

The positioning gap is the variable to watch. Local institutions net bought about $383 million of KOSPI shares, with $432 million in technology, while retail investors net sold roughly $1.5 billion in the sector. The Philadelphia Semiconductor Index still leads KOSPI, and if Korean stocks keep chasing overseas chip gains, the pressure on underweight funds to add exposure rises.

Japan's market followed, with the Nikkei 225 up 0.59% to 68,713.80. Kioxia gained 3.75% to 53,740 yen and SoftBank Group rose 2.94% to 5,739 yen.

This article is for informational purposes only and does not constitute investment advice.