Selling pressure hit semiconductor equities across South Korea, Japan and Taiwan, while Chinese technology indices also fell. The OECD’s 2026 Economic Survey of Korea said the country’s reliance on semiconductor exports, despite supporting growth, is raising exposure to global technology-cycle swings and increasing vulnerability to external shocks, output volatility and fluctuations in tax receipts. It added that export and investment growth accelerated in early 2026, supported by the AI boom, but warned this concentration can create strategic risks.
The OECD called for fiscal policy to support domestic demand in the near term, followed by consolidation over the medium term as ageing-related spending rises, alongside a stronger fiscal framework, later pension eligibility, labour-market reform and broader tax changes, particularly on property taxation. On inflation, South Korea’s CPI rose 0.1% m/m and 3.2% y/y in June, versus 0.5% m/m and 3.1% y/y in May, while core CPI excluding food and energy was unchanged m/m and up 2.5% y/y, matching the prior month; monthly gains were led by furnishings and household maintenance (+1.2%), food and non-alcoholic beverages (+0.4%), alcoholic beverages and tobacco (+0.3%) and health (+0.2%).
Market Sentiment and Risk Signals
We see the heavy selling in semiconductor stocks as a clear warning sign for the coming weeks. With the KOSPI index having already retreated 4% over the last month, investor confidence in the sustainability of the AI-driven rally is clearly cracking. This suggests that further downside is more likely than a quick rebound.
The increased exposure to global tech cycle swings means we should prepare for higher volatility. The VKOSPI, South Korea’s volatility index, has already ticked up to a three-month high of 18.5, indicating rising market anxiety. We believe strategies that profit from price swings, such as purchasing straddles on major tech ETFs, are becoming attractive.
Positioning and Defensive Strategies
Given recent data from TrendForce showing a softening in memory chip prices and net selling by foreign investors totaling $1.8 billion in June, we are positioning for a potential decline. Buying out-of-the-money put options on the most exposed semiconductor companies offers a cost-effective way to hedge existing long positions or speculate on a correction. This is a direct response to the growing concentration risk highlighted in the analysis.
This current environment feels similar to previous downturns, such as the 2018 chip cycle correction, where initial weakness quickly cascaded. With core inflation stable at 2.5%, the Bank of Korea has little incentive to provide support with a rate cut, leaving the market vulnerable to external shocks. Therefore, we are reducing our bullish exposure and building defensive positions.
