South Korea's $13.9B AI sovereign fund lifts KOSPI 14%

South Korea will inject KRW20 trillion ($13.9 billion) into its sovereign wealth fund for strategic investments in AI, data centers and infrastructure, sending the KOSPI up 14 percent in morning trading as Samsung Electronics and SK Hynix surged.

"The new investment arrangement aims to proactively respond to growing global interest in investing in South Korea," the government said, adding that the account will support strategic industries while providing a buffer for economic security and foreign exchange markets.

The government will submit amendments to the Korea Investment Corporation Act to parliament next month, allowing the Korea Investment Corporation to establish a new account with an initial size of at least KRW20 trillion. Fund operations are scheduled to commence next year. This marks the first time the fund's investment scope has been expanded to include domestic assets.

The move comes after the KOSPI plunged from a record high of 9,410 in June to 5,817, making it one of the worst-performing global indices. Samsung Electronics and SK Hynix, which account for over 50 percent of the index, had fallen sharply during a global memory chip selloff.

SK Hynix jumped 24.43 percent and Samsung Electronics rose 21.74 percent in morning trading. In Hong Kong, leveraged products tracking the two chipmakers surged even more sharply: XL2CSOPHYNIX (07709.HK), a 2x long SK Hynix product, soared 57.02 percent, while XL2CSOPSMSN (07747.HK), a 2x long Samsung product, gained 42.93 percent.

The rally marks a dramatic reversal for Korean equities. Samsung Electronics had fallen from 374,000 won to 223,500 won, while SK Hynix dropped from 2.98 million won to 1.42 million won. The Roundhill Memory ETF (DRAM), which tracks the biggest memory chip companies, had fallen 43 percent from its all-time high. Foreign investors sold over $62 billion of Korean stocks as of late May, according to Goldman Sachs, and the iShares MSCI South Korea ETF (EWY) had dropped to $144.2 from a year-to-date high of $217.

The selloff was driven by multiple factors. Investors took profits after memory and semiconductor stocks had surged triple digits from their lows last year. South Korean retail investors had borrowed heavily to buy single-stock leveraged ETFs introduced in May, buying over 14 trillion won ($9.7 billion) of these products compared with 2 trillion won from foreign investors, according to KB Financial. The government subsequently banned these ETFs, with the finance minister apologizing to investors who lost money.

Geopolitical pressures also weighed on the market. The US-Iran conflict pushed Brent crude to $87 and WTI to $84, raising inflation concerns in South Korea, which imports substantial energy from the Middle East.

Government Backstop for Strategic Industries

The sovereign wealth fund expansion represents a significant policy shift. The Korea Investment Corporation, which manages the country's foreign exchange reserves, has traditionally invested only in overseas assets. Expanding its mandate to include domestic investments in AI, data centers and infrastructure marks a more active government role in supporting strategic industries.

The fund's initial size of KRW20 trillion provides a meaningful backstop for the technology sector. The government's commitment to AI infrastructure investment positions South Korea as a competitor in the global AI buildout, alongside the US, China and other major economies.

What Happens Next

The amendments to the Korea Investment Corporation Act will be submitted to parliament next month, with fund operations scheduled to begin next year. The timeline suggests the government is moving quickly to stabilize markets and support the technology sector.

The policy response follows a period of intense volatility. The KOSPI's Relative Strength Index had reached an extreme overbought reading of 83.95 in May before the selloff began. The index's decline from 9,410 to 5,817 represents a 38 percent drawdown, one of the steepest among global benchmarks this year.

Whether the fund injection can sustain the rally depends on execution. The government must pass the legislation through parliament and deploy capital effectively. If the fund begins investing in AI infrastructure next year as planned, it could provide a durable floor for Korean technology stocks. If implementation stalls, the KOSPI could resume its decline.

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