South Korea's $4.3 trillion stock market is rapidly losing relevance with investors as the once-hot AI trade collapses. According to Bloomberg, turnover has collapsed 70% from its peak in late May, foreigners are retreating at the fastest pace in Asia and local retail investors are also pulling back. The Kospi, which was the world's best-performing major equities benchmark in the first half, has since lost 22% to be the worst in the second half while its AI-heavy Taiwanese and US peers set new highs. Foreign funds pulled $131 billion from Korean stocks this year, the most among major Asian markets, as reported by Bloomberg. The two chipmakers together account for over half of Kospi's weighting and powered its ascent earlier this year, but now face skepticism over memory chip demand durability.
Lone Pine Capital's flagship hedge fund, Cypress, erased a 44% year-to-date gain in just three months as AI stocks reversed sharply. According to Bloomberg, the fund finished September up just 0.6%, marking a dramatic reversal from its strong start to the year. The $19 billion hedge fund, which had posted double-digit gains for three consecutive years, saw nearly 25% of its value wiped out in July alone as AI and tech stocks sold off. July did most of the damage as tensions involving Iran and a spike in oil prices made the rout worse, with the timing particularly brutal given that Lone Pine bought five of its seven biggest US stock positions in the second quarter, which made up about 40% of its US portfolio. The fund's biggest AI bet was Nebius Group, a Dutch company that rents AI computing power, where Lone Pine held about $1.18 billion of stock that fell nearly a third in July.
A London investment bank strategist has issued a stark warning about the artificial intelligence trade, predicting the most severe market crash since the global financial crisis. According to Bloomberg, Panmure Liberum's Joachim Klement said his base case is for the AI bubble to burst in 2027 or 2028, sending stocks sharply lower. His 2027 year-end target of 5,000 points for the S&P 500 implies 36% downside from current levels, making it the most bearish among seven other strategists tracked by Bloomberg, who on average look for potential upside of 14%. Klement's 5,000 target marks a sharp shift from just weeks earlier, when he expected the index to climb to 8,300 by the end of 2027. The strategist, who started his career at UBS Group AG more than two decades ago, is among the first to call an end to the stock market's current bull run, having previously assumed the S&P 500 would hit 8,300 points by the end of next year.
According to reports from CNBC, Temasek's investment chief Rohit Sipahimalani identified an artificial intelligence trade unwind as the biggest risk facing global markets during the Milken Institute Asia Summit 2026 in Singapore. Speaking on Wednesday, Sipahimalani warned that the unwinding of the AI trade is the biggest risk... We don't see that as imminent. But, will you have bumps in 2027, possibly yes. As reported by CNBC, Sipahimalani also highlighted that the other main issue is concerns around inflation, noting that inflation is a risk, together with what is happening in the rates environment, that means there probably is a risk of some breaking point in the equity market at some point. These two factors represent two key risks I would see for 2027. The warning has company among major investors, with Ray Dalio also warning that the AI boom resembles a 'classic bubble' that could be close to bursting.
As reported by CNBC, Sipahimalani noted that market resilience relies on a narrow group of AI-linked winners, as half of Russell 3000 stocks remain at least 20% below June highs. He explained that AI has been a key force keeping U.S. stocks near record highs despite rising Treasury yields, helped by strong earnings from major companies tied to the technology. According to Bloomberg, Klement said people are just focusing on one thing and one thing only, and that is earnings and in particular tech earnings, noting that investors are excusing every macro, credit or whatever headwind that comes up with the AI story. However, debate is raging ahead of the upcoming US earnings season that will mark a key test of whether hundreds of billions of dollars of AI-related spending by tech giants is following through to stronger profits. Despite these concerns, the stock market has brushed off these warnings, with the S&P 500 and Nasdaq 100 hitting record highs this week on optimism over tech earnings.
