Weekly Market Review

Korea has an ant problem

For the most part, the strong performance across equity markets, and particularly in technology hardware and semiconductor manufacturing, has been driven by fundamental earnings strength rather than purely irrational exuberance, although there are certainly pockets of that. This week we focus on the clearest example of where the AI rally has gone too far: Korea. In local currency terms, the Bloomberg Korea Large & Mid Cap index rose by over 422% at its peak since the April tariff-related sell-off low last year. For the four years from 9 April 2021 to 9 April 2025, the index had delivered a return of -26%.

Two technology stocks have driven the market higher: Samsung and SK Hynix, both manufacturers of semiconductors that have seen demand skyrocket. SK Hynix shares peaked earlier this month after rising more than 1,700% since 9 April last year. Samsung delivered a still impressive 600% return over the same period. The two companies became so dominant that at the start of this week they made up 75% of the Korean equity index.

South Korean retail traders, widely known locally as ‘ants’, number over 14 million individual investors and now represent about a third of the country's daily stock trading volume, significantly influencing the market. They have recently driven unprecedented retail rallies through leveraged bets on artificial intelligence and technology.

Single-stock leveraged ETFs, which allow investors to receive 2x the stock return for individual companies such as SK Hynix, have become incredibly popular with ants since being approved by the regulator only two months ago. This has created massive volatility, with daily moves of over ±10% for the two behemoths becoming the norm.

The SK Hynix leveraged ETF alone has swelled to US$10bn, while at the end of May sixteen similar leveraged single-stock products linked to chipmakers were launched in Korea. This month, weakness across global technology stocks simultaneously caused liquidity to break down in such products, resulting in huge divergences between product performance and the underlying stock return. Earlier this month, even as SK Hynix jumped 16%, the KIM ACE SK Hynix Single Stock Leverage ETF dropped 27%. The Korean regulator is becoming increasingly concerned by the impact such instruments are having on the market, with the watchdog announcing its regret at having approved them.

Last week was particularly volatile, with Hynix stock down 17% in little more than a session mid-week, before the week ended with trading being halted on the Korean stock exchange after the market fell 9% shortly after the open on Friday.

While there are other areas of froth in the market, few are as clear as the ant frenzy in South Korea, which does not reflect the earnings-driven rally seen in April and May. That said, some of this froth coming out after such a strong prior rally is a healthy reset, and the broader June weakness across global equity markets reflects a similar dynamic, with positioning and inflation fears now driving the narrative.

The ‘June Swoon’

Equity markets have weakened in June, with technology stocks bearing the brunt. Two factors are driving the 'June Swoon': positioning and inflation fears.

Inflation fears: The US economy is showing signs of heating up, with manufacturing activity at a 49-month high, the labour market tightening and the economic surprise index spiking. Inflationary pressures appear to be building too, particularly related to the AI build-out. PPI inflation is running at 6.5% in the US, with electronic manufacturing components well into double digits.

It is clear that the AI build-out is putting upward pressure on prices. We saw this anecdotally last week, with Apple raising prices across its Mac, iPad, home devices and Vision Pro lines, its most extensive price action in years, directly citing an unprecedented shortage of memory chips driven by the AI boom. Microsoft moved in lockstep, raising Xbox prices within hours of Apple's announcement, with both companies warning the crunch and its impact on consumer prices will not end anytime soon.

There has been a hawkish pivot at the Fed and, with Kevin Warsh at the helm, there are fears that this price stability pragmatist could oversee a more material hawkish recalibration, hiking rates further to address inflation that has been above target for more than five years, as evidenced last week by the acceleration in PCE inflation. The most concerning pattern is the reassertion of 2022's dynamic, where the market reacts negatively to strong economic data because it is taken as further evidence of overheating.

Positioning: It is healthy for equities to correct after a period of strong performance. This allows some of the hot air to escape and positioning to normalise, better reflecting fundamentals.

As we digest the AI cycle, its success hinges on one thing: end-user demand. The price and demand AI companies receive for their services needs to meet forecasts in order for them to honour their commitments to the hyperscalers for compute. The hyperscaler data centre build-out is backed by the revenues of AI companies, and further down the supply chain, the companies benefitting from hyperscaler capital expenditure are themselves reliant on the hyperscalers.

The AI ecosystem falls apart if expected end-user demand for AI and LLM products does not materialise, or if prices for their offerings fall sharply below expectations. Having reviewed the revenue forecasts for the leading AI companies, they appear optimistic but not necessarily unrealistic. The mathematics becomes much easier if compute costs fall, and perhaps the next wave of the AI build-out will be focused on improving the efficiency of compute.

US Equity Markets – Weekly Commentary

US equity markets experienced a mixed week as investors rotated away from the year's strongest-performing technology and AI-related stocks, taking profits after an exceptional first half of 2026. While the technology-heavy Nasdaq came under pressure, the rotation into value stocks and smaller companies provided support for broader markets.

Economic data continued to paint a resilient picture of the US economy. Business activity strengthened during June, consumer spending remained robust and first-quarter GDP was revised higher. Inflation remains above the Federal Reserve's long-term target, but lower oil prices helped ease immediate inflation concerns, allowing Treasury yields to drift lower during the week.

Although short-term volatility has increased, corporate earnings expectations remain healthy and the structural investment theme surrounding artificial intelligence continues to support longer-term market optimism. We view the recent pullback as a healthy consolidation rather than the beginning of a broader market correction.

Global Markets – Weekly Commentary

Global equity markets softened modestly during the week as investors locked in profits following a strong first half of the year. European and Asian markets also experienced weakness, largely reflecting the pullback in global technology shares rather than deteriorating economic fundamentals.

Encouragingly, lower energy prices have eased concerns over inflation after recent geopolitical tensions in the Middle East. Brent crude remained below recent highs, helping improve sentiment towards both consumers and businesses worldwide.

Japan continues to benefit from strong corporate earnings and improving shareholder returns, while emerging Asian markets remain supported by ongoing investment in semiconductor manufacturing and AI infrastructure. European markets continue to face more modest growth but are benefiting from improving industrial activity and expectations of gradually easing monetary conditions.