JPMorgan says South Korean stock market is expected to catch up with the AI recovery rally in an orderly manner

JPMorgan pointed out that, given the investor positioning structure and earnings growth, the pullback in the Korean stock market after the July AI/memory recovery may be more orderly than in previous AI rebound cycles. Analysts including Tony Lee wrote in a report that the current trend "looks more controlled than explosive," citing an "improved Gamma backdrop" that reduces the risk of mechanically amplified volatility and EPS revisions. Although South Korea's memory fundamentals have improved, it remains lagging after the July AI/memory recovery, with room still to catch up, especially if macroeconomic factors such as high yields, oil prices, and declining risk appetite in Asian markets stabilize. South Korea's volatility environment improved in September, bringing dealers' long Gamma positions in equities to about $430 million, the longest Gamma positioning in the past year. "Because call-side pricing is elevated, we believe the most appropriate way to hold KOSPI2 upside exposure is through structured products with rich convexity characteristics." Ahead of Samsung's and SK Hynix's third-quarter earnings releases, the analysts believe that "HBM demand, pricing and product mix, exchange rates, as well as capital expenditure discipline and shareholder return updates are key catalysts, and there is potential for significant market swings."