The dramatic reversal of South Korea's AI trading frenzy may be serving as a mirror for the global AI investment bubble.

Just six weeks ago, South Korean AI-related stocks were at the peak of their exuberance. Now, one of the world's most crowded trades has experienced a violent purge—valuations have been severely compressed, leveraged positions have been forcibly liquidated, and momentum has completely collapsed. The KOSPI index is testing its 200-day moving average, while its weekly RSI has fallen to historically extreme lows. Meanwhile, SK Hynix has completed a full "round trip," with nearly all of its previous gains having been wiped out.

The core question for the market has shifted from "how far can the decline go" to "whether the excesses within the system have been sufficiently cleared." Bank of America estimates that over the past four weeks, the South Korean stock market has attracted approximately $16 billion in capital inflows. A large amount of capital chased the market at high prices, suggesting that the process of position resetting will not be a quick fix. At the same time, semiconductors, South Korean stocks, and memory chip shares are attempting to stabilize in deeply oversold territory, with some market participants beginning to focus on potential technical rebound opportunities.

Momentum Collapse: KOSPI Weekly RSI Hits Historic Low

The KOSPI's technical indicators have flashed extreme signals. The index's weekly RSI has fallen to its lowest level in history, and its daily RSI has also dropped to 31, entering deeply oversold territory.

Currently, the KOSPI is testing support at its 200-day moving average and long-term trend line. From a technical perspective, the oversold condition has set the stage for a potential rebound. However, analysts believe that the excesses built up over months during the AI rally will require time to correct, and the "AI hangover" is unlikely to end quickly.

As a representative stock of the Asian AI boom, the trend for SK Hynix is particularly typical. A post-earnings sell-off has pushed its share price back down to its long-term trend line and 200-day moving average, with virtually all of its previous gains erased.

More noteworthy is the intense unwinding of leverage risk. As Goldman Sachs previously pointed out, a 2x leveraged ETF tracking SK Hynix once became the world's largest single-stock leveraged ETF. As the market trend reversed, high-leverage trading amplified market volatility, causing many investors to experience the risks of leveraged instruments during a downtrend.

Despite the oversold signals from the technical indicators, the pressure from positions has not yet been fully released. According to Bank of America data, the South Korean stock market has attracted a cumulative $16 billion in capital inflows over the past four weeks, with some of this capital entering the market at the peak of the rally.

This means that market deleveraging is a process, not a single event. Currently, semiconductor and memory chip stocks are attempting to find support in oversold territory. If an unexpectedly positive catalyst emerges, the magnitude of any rebound could be amplified by the position adjustment. However, over the medium term, the valuation pressure accumulated from the AI trade still needs to be further digested.