SynopsisSouth Korea’s KOSPI has swung from bear to bull market in just a month, surging over 31% from its July low. A sharp rebound in Samsung Electronics and SK Hynix has driven the rally, reviving optimism around AI-linked chip stocks. Analysts see scope for further gains, but warn of heightened volatility.ETMarkets.comKOSPI surges over 31% from July low as chip stocks revive the AI trade.After weeks of relentless selloff, South Korea's Kospi has sharply rebounded, clawing back a significant portion of its losses to swing into a technical bull market, just around a month after entering bear market territory.The KOSPI jumped nearly 5% to 6,896 on Thursday morning, hitting its highest level in nearly three weeks. The benchmark has now surged more than 31% from its July low of 5,263, which it touched late last month.South Korea’s benchmark index has gained more than 10% over four consecutive sessions and 23% in the past 10 sessions. The recent rally has firmly pushed the KOSPI into technical bull-market territory.Kospi's tenure in the bear marketThe recent rally comes nearly a month after the KOSPI entered bear-market territory, plunging more than 20% from its peak of 9,386 as a tech rout following a massive rally kept investors on edge.Analysts noted that the KOSPI’s performance is closely tied to chip giants Samsung Electronics and SK Hynix, which together account for nearly half of the index’s weight and have contributed roughly two-thirds of its gains this year. As these stocks crashed, so did the KOSPI.What worsened the crisis was single-stock leveraged ETFs linked to these two chipmakers, which seemed to further increase concentration risks, leading to the Kospi spiralling down.Also read | 'Wait till payback time!': South Korean retail investors protest as govt apologises after Kospi crashes 40% in a monthChip stocks rallyHowever, as investor interest in chip stocks regained strength, Kospi reacted the most, but this time on a positive note. Today's sharp surge comes as shares of chipmakers SK Hynix and Samsung Electronics rallied up to 8%. Meanwhile, a report that Singapore state investor Temasek plans to invest in the memory chipmakers also buoyed sentiment ⁠around the semiconductor ‌sector."The Korean stock market has been trading as if it has bipolar disorder, swinging from panic to euphoria almost overnight," CNBC earlier quoted Jung In Yun of Fibonacci Asset Management as saying. He added that today's move looks like a violent reversal of an extremely crowded selloff.What lies ahead?Nomura believes that the heavy correction in South Korea’s equity market was driven by heavy selling by foreign investors, slowing institutional support and volatility due to the rapid growth in leveraged ETFs and newly launched single-stock leveraged products."We believe these factors led to amplified volatility despite resilient corporate fundamentals. As market “deleveraging” progresses and foreign selling pressure eases, the next leg of Korea's rerating is likely to be supported by corporate share buybacks and treasury-share cancellations, particularly from large-cap companies, in our view," the international brokerage said, adding that this should become a new structural source of demand and help the Kospi re-rate toward the 10,000-11,000 target.Also read |Dividend alert! Last day to buy HAL, HPCL, IOC among 40 stocks for dividends. How many do you own?Citi recently downgraded South Korea’s stock market to a neutral stance after keeping it overweight for the past year, citing heightened volatility in AI-linked chip stocks. Despite the downgrade, Citi said it remains structurally positive on the long-term artificial intelligence investment theme. It has maintained its 10,000 target for the benchmark index.(With inputs from agencies)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. 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