RESEARCH — Nov. 25, 2025

South Korean Short Interest Declines Amid AI-Driven Market Rally


Short interest falls as AI, EV stocks dominate Korean equity rally.

South Korea’s equity market has been on a remarkable run in 2025, with the Kospi index soaring 61% year-to-date, fuelled largely by the global artificial intelligence (AI) boom. Yet, beneath the surface of this rally, an important trend has emerged: short interest, measured as a percentage of market capitalization on loan, has been steadily declining since early September. After peaking at a tariff-induced high of 1.33% in April, short interest now stands at 0.92%, signalling a notable shift in investor sentiment.

From Tariff Shock to Easing Bearish Bets

The spike in short interest earlier this year was largely driven by trade tensions and tariff uncertainties, which rattled investor confidence and prompted bearish positioning. However, as those fears subsided and optimism around AI-driven growth took hold, short sellers began to retreat. The steady decline since September suggests that market participants are increasingly reluctant to bet against Korean equities, even as valuations climb.

This trend reflects a broader narrative: despite recent reports that overseas funds have resumed net selling in November, domestic sentiment remains resilient. Kospi bulls argue that the AI supercycle is far from over, with semiconductor giants like Samsung Electronics and SK Hynix still considered attractively priced relative to global peers.

Recent Revenue Leaders: A Clear Theme Emerges

Looking at October’s top revenue-generating stocks for securities lending provides further insight into market dynamics. The list includes:

  • LG Energy Solution Ltd (373220)
  • Ecopro BM Co Ltd (247540)
  • Hanmi Semiconductor Co Ltd (042700)
  • HD Hyundai Heavy Industries Co Ltd (329180)
  • L&F Co Ltd (066970)
  • Posco Future M Co Ltd (003670)
  • Ecopro Co Ltd (086520)
  • SKC Co Ltd (011790)
  • Hanwha Systems Co Ltd (272210)
  • Enchem Co Ltd (348370)

A clear trend emerges battery materials, energy solutions, and semiconductor-related plays dominate the list. Companies like LG Energy Solution, Ecopro BM, and L&F are central to the electric vehicle (EV) supply chain, producing advanced battery components critical for next-generation mobility. Meanwhile, Hanmi Semiconductor and SKC are deeply tied to the semiconductor ecosystem, which is benefiting from surging AI demand.

Even heavyweights like HD Hyundai Heavy Industries and Hanwha Systems reflect Korea’s industrial pivot toward high-tech and defence solutions, areas increasingly intertwined with AI and automation. Posco Future M and Enchem, both active in advanced materials, further underscore the structural shift toward green technologies and high-performance components.

AI Boom and the Kospi’s Path Forward

The Kospi’s meteoric rise has been underpinned by expectations of an AI-driven “supercycle” for Korean chipmakers. Analysts argue that demand for high-performance memory and processing chips will remain robust as global tech giants race to build AI infrastructure.

President Lee Jae Myung’s ambitious target of pushing the Kospi to 5,000 has added a layer of political momentum to the market narrative. However, reported recent foreign outflows highlight lingering concerns about sustainability. November could be one of the largest net selling months of 2025, as overseas investors lock in profits and reassess risk amid global macro uncertainties.

Bond Market Signals and Risk Appetite

Interestingly, the local bond market is also flashing signs of improving sentiment. After a spike in short-term government bond yields to a one-year high prompting buyers to demand higher risk premiums conditions are stabilizing. This could ease funding pressures and support equity valuations, particularly for capital-intensive sectors like semiconductors and EV batteries.

The KOSPI 50 has entered a new phase

The KOSPI 50 has entered a new phase following the lifting of South Korea’s longest-ever short-selling ban on March 31, 2025. The ban, which lasted 16 months, was originally imposed in November 2023. Its removal came alongside sweeping regulatory reforms, including the introduction of the Naked Short-Selling Detection System (NSDS) and stricter penalties for violations. While the resumption initially triggered volatility, large-cap names in the KOSPI 50 saw sharp declines as foreign investors sold off positions, many investors believe that the move has helped to enhance market liquidity and improve price discovery which can support the growth of valuations. These changes aimed to restore confidence and level the playing field for retail investors, who account for more than half of trading volume in Korea’s equity markets.

What Does Declining Short Interest Tell Us?

The drop in short interest to 0.92% suggests that bearish conviction is waning, even as some investors take may be taking profits. For now, the market appears to be betting that Korea’s strategic positioning in AI, semiconductors, and green technologies will outweigh near-term volatility.

Still, risks remain. A reversal in global liquidity conditions, geopolitical shocks, or a slowdown in AI adoption could challenge the bullish narrative. For now, though, the data points to a market where optimism is winning out and short sellers may well be starting to step aside.

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