South Korea's benchmark KOSPI index staged a historic recovery on July 31, posting its largest single-day percentage gain on record. The rebound was fueled by a sharp rally in U.S. technology stocks overnight and steadying global expectations for artificial intelligence (AI) capital expenditure.

After days of heavy selling, the Korean market surged more than 14% in its biggest daily jump ever, with semiconductor bellwethers leading the charge. Financial data showed the rally was driven by a powerful combination of foreign capital inflows and short covering.

Shares of Samsung Electronics and SK Hynix experienced explosive rebounds. The sentiment shift was triggered by strong earnings reports from U.S. tech giants Microsoft, Amazon, and Meta Platforms the previous day, which eased fears of an AI investment bubble and re-anchored spending expectations for the global chip supply chain. Additionally, an announcement that SK Group Chairman Chey Tae-won would increase his stake in SK Hynix further boosted confidence in the memory chip sector.

Market analysts attributed the powerful rally to a combination of large-scale foreign buying and the unwinding of short positions. The implementation of stricter cash margin requirements for leveraged exchange-traded fund (ETF) investors in Korea, which took effect on July 31, forced some leveraged funds to rebalance their positions, amplifying the upward move.

"The extreme selling pressure before had created a heavy concentration of short positions. Today's move was essentially a violent correction of that oversold condition," said analyst Jung-in Yoon at Fibonacci Asset Management. He emphasized that the key to a sustained recovery will be whether foreign investors maintain net buying after the short-covering wave subsides.

Prior to this record-breaking rally, the Korean stock market had tumbled for multiple consecutive sessions on concerns over overvalued AI stocks and forced liquidations from high leverage. Futuum Group semiconductor analyst Rolf Bulk noted that the forced selling pressure from recent margin calls has largely been exhausted. "There are no signs yet that global AI infrastructure buildout is slowing down. The long-term demand fundamentals remain solid," he said.

However, some institutions remain cautious about the outlook. Paul Gambles, co-founder of MBMG Family Office Group, warned that current asset price volatility is somewhat disconnected from economic fundamentals. "In a high-leverage environment, market sentiment is very fragile and can shift quickly. Investors should still be wary of potential sharp market corrections," he cautioned.