South Korea’s Kospi climbs 5%, extending two-day rebound: 3 reasons fueling the rally after July selloff

After a bruising selloff in July that dragged South Korea's benchmark KOSPI, the world's best performing major market this year, down 24% for the month, the index has staged a sharp rebound in the first few sessions of August. It has gained over 5% or 315 points through Wednesday, extending its two-day recovery to 7%.

Semiconductor stocks led the rebound after major artificial intelligence hyperscalers eased concerns over whether heavy spending on data centres was putting excessive pressure on cash flows. Even so, the key question for investors remains unchanged: can companies investing billions of dollars in AI generate returns that justify those massive capital outlays?

Here are 3 reasons behind Kospi surge today:

1.) US stocks close at record high - The S&P 500 and the Dow Jones Industrial Average ended Tuesday at fresh record highs, lifted by strong earnings from AI-linked companies including Caterpillar and Palantir, which eased concerns over demand.


Palantir posted its biggest single-day gain in more than two years after delivering blockbuster second quarter results. CEO Alex Karp attributed the performance to "otherworldly" demand driven by AI sovereignty. The rally extended to chipmakers, which continued their recovery after July's sharp selloff. Micron Technology jumped more than 7%, while Nvidia closed nearly 3% higher and SanDisk surged 11%.

Caterpillar emerged as the top performer on the Dow after beating second quarter estimates and raising its revenue growth outlook. The company said demand for its equipment remained strong as AI data centre construction accelerated across the U.S.

Read more: A crash coming? Ray Dalio warns AI rally looks like 1929 and 2000 bubbles

The positive momentum spread to Asia, where Samsung shares surged more than 3% and SK Hynix soared over 7%. Both companies had reported strong quarterly results last week. Samsung posted a record quarterly profit, driven by its semiconductor business, and said it expects a favourable supply-demand environment for memory chips to continue through at least 2027 while pointing to an increase in long-term customer contracts. SK Hynix also reported record revenue, although its quarterly profit came in below elevated market expectations.

2.) Iran peace deal hopes - Oil prices traded at $80, sharply lower from $100 last month amid hopes of a US-Iran peace deal that could open the Hormuz Strait. Speaking to CNBC, U.S. Treasury Secretary Scott Bessent said Washington and Tehran could reach an agreement to reopen the Strait of Hormuz as early as Tuesday or Wednesday. According to him, such a deal would allow commercial vessels to move freely through the waterway.

U.S. Secretary of State Marco Rubio said the U.S. was participating in talks involving Iran and Oman. While negotiations were moving forward, he noted that no final agreement had been reached.

Qatar, which is serving as a key mediator in the negotiations, said efforts were continuing to secure a short-term breakthrough that could pave the way for broader discussions between the U.S. and Iran.

3.) Value despite the surge - Goldman Sachs also struck a constructive tone, saying the recent selloff in South Korean semiconductor stocks had been intensified by the unwinding of positions in newly launched exchange-traded funds that are heavily concentrated in one or two stocks. The brokerage said the underlying semiconductor cycle remains fundamentally strong.

Last month, Reuters reported that SK Hynix Chief Executive Kwak Noh-jung expects the global memory industry to face its worst-ever supply shortage in 2027. He said demand is likely to remain above the company's production capacity well beyond 2030 despite aggressive expansion plans.

Also read: Palantir lifts annual revenue forecast on steady demand for AI-powered data analytics

South Korea's semiconductor sector continues to be supported by long-term demand trends, but excessive leverage has made the market more vulnerable to sharp swings, Bloomberg quoted Hebe Chen, senior market analyst at Vantage Global Prime in Sydney.

"South Korea's semiconductor story is built on genuine structural demand, but an uncontrolled appetite for leverage has stretched it into a far more fragile market trade," Chen said. "The double-edged sword is now cutting the other way and leverage is making the fall every bit as powerful as the climb."

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