1 strategist finds Korean investors cold on China amid 7800-point AI rally

South Korean investors are piling into their domestic stock market with a fervor not seen in years, pushing the KOSPI index past 7,800 points, while giving Chinese equities the cold shoulder, according to a strategist’s recent visit to Seoul.

"Most investors think now may not be the time to go long on the overall Chinese market, but rather to look for alpha opportunities," CICC strategist Liu Gang said, summarizing observations from a three-day roadshow with Korean institutional investors in May.

The contrast is stark. The KOSPI has been on a tear, recently celebrating its break above the 7,000-point mark, fueled by a global AI boom that has supercharged local semiconductor giants like Samsung and SK Hynix. This contrasts sharply with Hong Kong's Hang Seng Tech Index, which has languished for most of the past year, trapping many regional investors. Southbound flows from Hong Kong into mainland China A-shares have totaled just 240 billion yuan year-to-date, a fraction of the 1.3 trillion yuan seen last year.

The divergence highlights a critical shift in regional capital allocation, where investors are chasing a powerful AI-driven narrative in markets like South Korea and the U.S., while remaining deeply skeptical of China's recovery prospects. For Korean investors, the question is whether the current euphoria, which includes rising leverage among retail participants, is sustainable or the sign of a market top, while for China, the challenge is how to recapture investor interest in the face of a competing, high-performance narrative.

Mr. Liu’s visit, part of the Samsung Securities 2026 Global Investor Strategy Conference, found local institutions broadly underweight on China. The prevailing view is that while China’s market isn’t without promise, it lacks the clear, powerful theme driving Korean equities. One investor posed a challenging question: "If you want to buy technology and the AI chain, why buy it in A-shares and Hong Kong instead of the US and South Korea?"

This sentiment is rooted in performance. While AI-exposed stocks in the U.S. and Korea are seeing earnings revisions back their soaring valuations, investors noted that many A-share AI concepts lack fundamental support, making them feel "uneasy."

The Korean Grand Narrative

In Seoul, the mood is not just optimistic, but "frenzied," according to Mr. Liu's conversations. Retail investors are reportedly using leverage to buy stocks, with minors even discussing the market. The wealth effect is palpable, with Seoul real estate prices also hitting new highs.

Institutional investors justify their bullishness with a grand narrative: that the current global fragmentation and U.S.-China decoupling presents a strategic opportunity for South Korea. They see parallels to Japan's rise during the trade frictions of the 1980s. This belief extends beyond technology, fueling strong performance in Korean military, shipbuilding, and power equipment stocks as the country embeds itself deeper into U.S.-led supply chains.

China's Uphill Battle

For China, the concerns are multifaceted. Investors repeatedly questioned the durability of the economic recovery, the outlook for consumption, and the divergence between A-shares and Hong Kong-listed stocks. While some still see opportunities, they are confined to niche, bottom-up plays like Hong Kong IPOs, rather than broad market exposure.

One investor noted that Chinese tech stocks, once seen as high-growth plays, now trade more like value stocks. Unless there is a fundamental turnaround or a significant pullback in the U.S. and Korean tech rallies, the path of least resistance for regional fund flows appears to be away from China.

This article is for informational purposes only and does not constitute investment advice.