Korea surpasses India as world's sixth-largest equity market amid AI-led rally: Jefferies

In a significant shift in global financial standings, South Korea has ascended past India to claim the title of the world's sixth-largest stock market by capitalization. This development reflects the profound impact of the ongoing artificial intelligence (AI) investment boom on capital flows and investor preferences, as highlighted in a recent report by Jefferies. As of now, South Korea's stock market capitalization stands at an impressive $4.92 trillion, surpassing India's $4.82 trillion and closing the gap with Taiwan's $5.26 trillion market. This remarkable growth can be attributed to the heightened interest from investors in AI-driven technologies and semiconductor stocks, which are at the forefront of this financial rally. The report, aptly named 'The Battle for Capital and Fast Tracking,' emphasizes that AI continues to dominate global market trends. However, it also cautions that investors may be overlooking the geopolitical risks and signs of speculative excess that are beginning to emerge within various segments of the technology sector. Jefferies pointed to a wave of highly anticipated IPOs in the United States, including major players like SpaceX, OpenAI, and Anthropic. These mega IPOs are expected to attract substantial investor interest, potentially redirecting capital away from other equity markets. Notably, SpaceX is projected to raise around $75 billion at a valuation of approximately $1.77 trillion, which could significantly alter market dynamics. The report also highlighted that changes to U.S. index inclusion rules may enable such high-profile IPOs to be integrated into major indices more swiftly, compelling passive funds to purchase shares and subsequently increasing demand. However, Jefferies warned that these new listings could deplete liquidity from existing stocks, particularly those in the AI sector that have already seen massive inflows. Moreover, the report noted a surge in speculative activity in Asian technology markets, particularly in South Korea. Since the start of 2025, margin debt has skyrocketed by 140%, with investors heavily investing in leveraged semiconductor ETFs associated with companies like SK Hynix and Samsung Electronics. A leveraged SK Hynix ETF listed in Hong Kong has already accumulated over $10 billion in assets, making it the largest single-stock leveraged ETF in the world. Simultaneously, China is intensifying its efforts in the memory chip sector, with upcoming IPOs from Yangtze Memory Technologies (YMTC) and ChangXin Memory Technologies (CXMT) poised to raise fresh capital for production expansion, challenging established global players such as Samsung, SK Hynix, and Micron. Furthermore, China's integrated circuit exports nearly doubled year-on-year in April, showcasing its burgeoning semiconductor capabilities. Despite the excitement surrounding AI, Jefferies urged investors to remain vigilant about existing geopolitical tensions. The report mentioned the renewed conflicts involving Iran and the ongoing Russia-Ukraine situation as potential risks that could impact markets and inflation. As a strategy to mitigate these uncertainties, Jefferies continues to advocate for energy exposure, suggesting that developments in these geopolitical arenas could profoundly affect global commodity prices. While AI remains a key narrative in market growth, the brokerage posits that the competition for global investment capital is entering a transformative phase, influenced by mega IPOs, semiconductor rivalry, geopolitical strife, and shifting market leadership.