Bull market or bubble? 1997 is unfolding.

Against the backdrop of continuous large gains and historically high valuations, a small expectation gap ignited market concerns about an "AI bubble overheating." This led to the Han Guan Global Korean stocks ending the week with a significant drop of 5.54%. Market circuit breaker: During trading, when the KOSPI 200 futures index plummeted by 5%, the exchange urgently triggered the "Sidecar" circuit breaker mechanism, pausing programmatic trading for 5 minutes. Chip giants bloodbath: SK Hynix plummeted 9.92% for the whole day, while Samsung Electronics synchronously fell by 6.4%. Just this Wednesday, Goldman Sachs had raised the 12-month target price of the Korean Composite Stock Price Index (KOSPI) to 12,000 points, which meant that the index still had more than a 35% upside on that day. The bank stated that the per share earnings of Asia-Pacific stocks are expected to grow by 60% in 2026, with the technology sector still being the strongest theme. As of June 5th, the Korean Composite Stock Price Index had already accumulated a year-to-date increase of approximately 93.65%, reaching above 8900 points at one point this week. AI narrative softening at the edge On June 4th, global AI chip giant Broadcom released its latest quarterly financial report, which showed strong growth. However, its third-quarter AI chip sales guidance of $160 billion was slightly below the market's extremely aggressive estimate of $172 billion. Against the backdrop of continuous large gains and historically high valuations, this small expectation gap ignited market concerns about an "AI bubble overheating." On that day, Broadcom's stock price plummeted by 12.59%, dragging the Philadelphia Semiconductor Index down by 2.1%. Despite individual giants like Nvidia still holding strong, the outflow of profits at high levels has made global tech stocks jittery. During the Asian trading session on June 5th, Tokyo Electronics and Softbank Group in Japan plummeted due to excessive AI exposure, while the previously leveraged Korean stock market became the most violent outlet for this storm. Levers of leverage From the "national bankruptcy" of 1997 to the "national jubilation" of 2026, the Korean capital market is playing out a historical mirror spanning nearly 30 years. Looking back to the eve of the 1997 ASIA FINANCIAL crisis, Korea was immersed in the illusory prosperity of joining the "rich country club." At that time, the core of leverage was on the corporate and bank sides, with the chaebols' indebtedness exceeding 400% and banks massively borrowing foreign debt. When the storm hit, the Korean won plummeted by over 50%, the KOSPI index crashed by 60%, with countless retail investors falling into tears of the times as passive casualties in the chain of "business collapse, credit contraction," seeing their savings evaporate overnight. In 2026, amidst the surge of AI computing power and the shortage of HBM chips, Samsung and SK Hynix's profits were booming, driving the KOSPI index to soar in the year, reaching above 8900 points at one point. However, this time, the main actors of leverage are the young retail investors who acted aggressively. As of mid-May 2026, data from the Korea Financial Investment Association showed that the outstanding margin loans for stock purchases had swelled to 36.47 trillion Korean won, hitting a historical peak and doubling the figure from the same period in 2025. The proportion of margin trading had doubled from 18% a year ago to 35%. The Korean finance minister expressed concerns about the increase in leveraged stock investments and stated that measures would be taken to address the "herd effect" in the financial markets. The forgotten details of 1997 Alice's query results show that in 1997, the risk in the Korean stock market was due to: imbalanced external debt structure, compounded by the collapse of the fixed exchange rate, with the depreciation of the Thai baht as an external trigger, with the transmission path being "exchange rate external debt banks stock market." The potential path of risk transmission now could be: the risk of semiconductor cycle peaking + foreign capital concentration (U.S. capital accounting for 40% of foreign capital), with the transmission path being "stock market leveraged liquidation consumption real economy." In 1997, as the Thai baht crisis spread to Korea, foreign institutional investors noticed the anomaly and began evacuating. Within a few months, the exchange rate plummeted from around 880:1 to a low of around 1,962:1, depreciating by over 55%. The KOSPI index dropped from around 700 points at the beginning of 1997 to around 280 points. During the wildest moments in the stock market, there were single-day drops of around 20%. In 1998, Korea's GDP growth rate recorded a decline of about -5.5%, with 1.5 million people being laid off, and the unemployment rate skyrocketing from around 2% to nearly 9%. Rhymes of 2026 Since 2026 began, most of the Asia-Pacific currencies against the U.S. dollar have shown a depreciation trend. The blockage of the Strait of Hormuz disrupted shipping routes, causing Brent crude oil to briefly rise above $110 per barrel, directly impacting Asian economies highly dependent on imported oil (such as India with 88% oil imports, Indonesia, the Philippines, etc.). Amid rising geopolitical risks, global funds have poured into the U.S. dollar as a safe haven asset, leading to a temporary strengthening of the U.S. dollar index, suppressing all non-U.S. currencies. Institutions like Goldman Sachs pointed out that the U.S. dollar is on the "trade surplus" side in the face of energy price shocks, while most Asian economies are on the "trade deficit" side. The overall trend of the Korean won has been continuously weakening since the beginning of the year. Using January 2nd as a reference point, as of June 5th, the Korean won depreciated by over 6% against the U.S. dollar; and if the closing price at the end of 2025 is taken as a reference point, the depreciation exceeds 7%. Japan's central bank policy rate is only 0.75%, while the U.S. Federal Reserve's rate is maintained at 3.5%-3.75%, driving global capital to continue shorting the Japanese yen for carry trades by nearly 300 basis points. The depreciation of the yen has in turn dragged down the Korean won and other Southeast Asian currencies simultaneously. For the Korean stock market in 2026, the new risk is the launch of the double leverage ETF for individual stocks on May 27th, which attracted nearly $2 billion in just two days since its listing, with regulators warning of a "daily maximum fluctuation of up to 60%." This is a new type of risk amplifier that was not present in 1997. History's similarities are cause for concern, but it does not mean the outcome will be the same. During the conflict between the U.S. and Iran in February 2026, the KOSPI index plunged by nearly 20%, forcing a large number of retail investors into forced liquidation, serving as a "pressure test preview." The Korean finance minister mentioned that the adjustment of foreign investors' portfolios is one of the reasons for the volatility in the Korean stock market. Operational insights This "epic bull market" is almost entirely driven by the SK Hynix and Samsung Electronics "twin giants," which together account for nearly 50% of the index weight, leading to significant differences in the performance of the other two thousand listed companies. With the significant deterioration in the breadth of the index, traditional index funds are facing high concentration risks. The core question for professional investors is: If we remove Samsung and SK Hynix, what is left of the Korean stock market? The answer lies in the following five "bottom cards": Bottom Card One: Hyundai Motor Group transitioning from "selling cars" to "physical AI," the valuation logic is shifting from traditional automakers towards tech stocks (with a PE ratio breaking through 8.3 times upwards). Bottom Card Two: Three shipbuilding giants (entering an LNG ship boom cycle), having received orders for 32 LNG ships in the first five months of 2026, almost equaling the total of 2025. Bottom Card Three: Defense industry (benefitting from global geopolitical dividends), becoming the preferred supplier globally (in Europe, the Middle East, Southeast Asia) due to its "high cost-effectiveness and fast delivery." Bottom Card Four: Financial sector (benefitting from corporate governance reforms), with the "Korea Discount" shrinking from 18% to 7%, and improved shareholder returns for KB Financial, Shinhan Financial. Bottom Card Five: Biopharmaceuticals (the next wave of the Korean government's policy support), with the government listing "semiconductors, defense, and biopharma" as the country's three key strategic industries, enjoying long-term policy dividends. In summary, the true foundation of the Korean stock market after removing the semiconductor giants is: Hyundai, aiming to be the Siasun Robot & Automation of Korea; the shipbuilding behemoths with LNG cargo ships; missiles sold to Europe; banking stocks undergoing valuation repairs; and biopharmaceuticals entering global markets. The question is, if Samsung and SK Hynix were to collapse, can these five bottom cards independently support a Korean stock market with an overvalued level above 8000 points? History will not simply repeat itself A Korean civil servant posted a screenshot of his brokerage account on the anonymous workplace community Blind: he had wagered his entire 2.3 billion Korean won (approximately $1.7 million) on SK Hynix, with 1.7 billion Korean won borrowed from the brokerage as a margin loan. In the post, he wrote, "I believe the semiconductor market will continue to rise until 2028, but I'm taking a more aggressive approach to accelerate the appreciation of my assets." His logic is not without merit: SK Hynix's HBM chips almost monopoly NVIDIA's high-end supply chain, the demand for AI computing power is real, and Goldman Sachs' target price is also real. After experiencing SK Hynix's 9.92% plummet on June 5th, he is likely to have profoundly understood how those confident Koreans before the crisis in 1997 went through 1998. The swift sell-off in capital following Broadcom missing expectations has rung the alarm for all investors who had a singular faith in AI. History will not simply repeat itself, but it always echoes with similar tones. Under his post, a reply received the most likes: "I hope you remember to set a stop loss." 12,000 points may be a vast ocean in Goldman Sachs' eyes, but for professional investors, every doubling rally is the ultimate stress test for tools and cognition. This article is reproduced from "Wind Wande", GMTEight Editor: Wang Qiujia.