As the South Korean KOSPI index has dropped roughly 28% over the past month, Jim Cramer is pointing to the intertwined relationship between U.S. and Korean tech stocks as a hidden driver of Wall Street’s recent struggles, labeling the link an “under-rated reason” for the slump.
The ‘Nightmare’ Correlation
Reacting to reports of tightening correlations between the two markets, Cramer took to X to voice his concerns regarding the broader tech sector’s recent underperformance. He described the growing global linkage as an "under-rated reason for tech under-performance" and a "nightmare addition to our markets."
This warning comes as the KOSPI Composite Index has plummeted 28.39% in just one month, falling over 35% from its 52-week high of 9,385.59. Meanwhile, data from Rayliant Global Advisors reveals that the 60-day correlation between the tech-heavy Nasdaq 100 and the KOSPI recently hit roughly 0.50, marking its highest level since 2021.
The AI Barometer
This tightening bond is heavily driven by the artificial intelligence boom. South Korean heavyweights Samsung Electronics and SK Hynix Inc. ADR (NASDAQ:SKHY), which together account for more than half of the KOSPI index, sit at the center of the global AI hardware supply chain.
Because these chipmakers rely on the exact same hyperscaler spending that fuels U.S. tech giants, they act as an early indicator for global AI demand before Wall Street even opens.
“The correlation has increased because the KOSPI has become a semiconductor index,” Rolf Bulk, an analyst at Futurum Group, told CNBC.
Fading Diversification Benefits
Analysts warn that this increasing alignment strips investors of a key portfolio shield. Phillip Wool, head of research at Rayliant Global Advisors, also told CNBC that the fortunes of both markets are now being driven by a single common factor: sentiment toward the AI hardware trade.
“Korea no longer provides diversification against U.S. tech,” Bulk echoed. With heavy exposure to a single cyclical theme, experts caution that any potential slowdown in AI spending could severely impact both markets simultaneously, erasing the geographic diversification benefits investors previously sought.
How Have KOSPI and Nasdaq Performed?
While the KOSPI Composite Index fell 28.39% over the month and 10.73% over the last five sessions, the Nasdaq Composite Index has slipped 1.44% in a month and 2.26% over the last five sessions.
However, KOSPI has returned 42.94% on a year-to-date basis, and the Nasdaq was up just 7.27% in the same period.
When compared with the U.S.-based semiconductor and memory ETFs, iShares Semiconductor ETF (NASDAQ:SOXX) was up 69.30% year-to-date, lower by 12.49% over the month and 113.72% higher over the year.
The newly launched Roundhill Memory ETF (BATS:DRAM) declined by 27.06% over the last month, and it was 94.19% higher since its listing in April.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: katz / Shutterstock.com
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