The 60-day correlation between the Kospi and Nasdaq 100 has just hit its highest level since 2021, at around 0.50, according to data from Rayliant, and that’s got investors worried.
Why it matters:
The rise in correlation is largely due to the surge in artificial intelligence spending which is connecting the fortunes of U.S. tech giants and Korean memory chip manufacturers. As U.S. tech companies like NVIDIA and Google pour billions into AI research, their stock prices are becoming increasingly tied to the performance of Korean memory makers like Samsung and SK Hynix. This is bad news for investors, as it means that a downturn in the U.S. tech sector could have a ripple effect on the Korean market and vice versa.
The risks of a global AI bubble:
The correlation between the Kospi and Nasdaq 100 is not just a matter of domestic economies; it’s a sign of the increasingly interconnected nature of global tech markets. With the AI bubble showing no signs of deflating, investors are getting spooked. As the sector continues to attract massive amounts of funding, the risk of a global AI bubble expanding and popping is very real. If that happens, it could leave a trail of destruction in its wake.
What this means:
For investors, this means it’s time to get cautious. With the global tech market becoming increasingly intertwined, a downturn in one region could have far-reaching consequences. It’s not a good time to be taking on too much risk, especially in the AI sector. With the correlation between the Kospi and Nasdaq 100 at its highest level since 2021, it’s clear that investors need to be prepared for the worst.
