Bank of Korea: AI chip trade a financial stability risk

The Bank of Korea has warned that the booming trade in artificial intelligence chips poses a financial stability risk for South Korea, pointing to heavy concentration in Samsung Electronics and SK Hynix and a rapid rise in leveraged exchange-traded funds that could trigger shocks in markets and household finances.

The central bank reported that chip-related activity now touches Korea’s markets, banks and household balance sheets. Nominal gross domestic product grew 21.9% in the first half of 2026, with about 70% of that expansion coming from the semiconductor sector, the bank found.

Korea’s benchmark KOSPI index is dominated by Samsung and SK Hynix. The two firms account for close to half of the index’s market capitalisation and produced most of the earnings growth in the first six months of 2026. The central bank said semiconductor revenues have reached levels not seen since the 1970s, and semiconductor exports accounted for more than 40% of total shipments in some months this year. Authorities have revised full-year real GDP forecasts to roughly 3.3%–3.5%.

The rally has been driven by strong global demand for high-bandwidth memory and advanced DRAM used in AI accelerators. Major cloud and chip buyers such as Nvidia, AMD, Microsoft, Google, Amazon, Meta and Oracle rely on Samsung and SK Hynix for these components. With Micron, those firms are the main large-scale suppliers of the most advanced products.

The report highlighted a surge in leveraged ETFs tied to leading Korean technology names traded in Hong Kong, noting those products increased by more than twentyfold during the first half of 2026. Risky positions linked to Samsung and SK Hynix rose sharply in spring.

The Bank of Korea warned of clear downside risks if the AI chip cycle cools. A slowdown in global AI infrastructure spending forecast for 2027–2028 would have broad effects on the Korean economy, and rising Chinese competition in memory chips could amplify the shock. The central bank identified multiple channels of exposure: supply chains that connect hundreds of suppliers to global customers, financial markets concentrated in a few large companies, and household wealth that has grown with equity gains.

The report flagged signs of vendor financing similar to the dot-com era and said excess liquidity has flowed into real estate and leveraged products, increasing the risk of asset bubbles. At the same time, traditional manufacturing output, youth employment and domestic consumption remain weak relative to the chip sector’s growth.

Longer-term structural issues were included in the assessment. South Korea’s fertility rate is about 0.7 and the population is aging, while household debt levels remain high. The central bank warned that external shocks such as a sustained oil price above $100 per barrel or renewed trade tensions would widen these vulnerabilities.

The report noted global markets would feel effects quickly if Korean chip production falters. Share prices for firms like Nvidia and AMD move closely with Korean output, and AI-focused funds and semiconductor indices would likely be repriced. A faster-than-expected ramp-up of Chinese memory production could force a rapid reconfiguration of supply chains.

Analyst David K. Williams described the scale of the trade: “The trade has become so large that the central bank treats it as a financial stability issue, not merely an equity rally driven by strong fundamentals.”