IMF Warns Korea’s AI-Heavy Stock Market Faces Heightened Risks

The cover of the International Monetary Fund’s October 2026 Global Financial Stability Report, released on Oct. 13. (Screenshot from IMF) The International Monetary Fund (IMF) has identified excessive concentration in artificial intelligence (AI)-related assets as a major risk to global financial markets, warning that South Korea’s stock market is particularly vulnerable. If returns on AI investments fall short of expectations, forced selling could accelerate and trigger a sharp increase in market volatility, the fund cautioned. In its October 2026 Global Financial Stability Report (GFSR), released on Oct. 13, the IMF called for limits on exposure to AI-related derivatives, exchange-traded funds (ETFs) and lending. South Korea was identified as one of the major economies with particularly high stock market exposure to AI companies. The KOSPI’s sensitivity to AI stocks, measured by beta, stood at approximately 0.8 this year, exceeding the corresponding levels in the United States, Japan and the eurozone. South Korea’s stock market has already experienced the downside of its heavy reliance on AI-related shares. From the beginning of the second half of the year through Oct. 15, the KOSPI fell 34.5%, contrasting sharply with gains in U.S. and Taiwanese stocks and an 8% decline in Japan’s Nikkei index. The KOSPI recorded seven consecutive sessions of losses from Oct. 6 through Oct. 15, including a 7.57% plunge on Oct. 15, as selling pressure intensified. The IMF views the rapid expansion of leveraged AI-related investments as a major threat. AI stocks accounted for 28% of holdings in major leveraged ETFs this year, up from 16% at the end of 2024. In South Korea, following the government’s approval of single-stock leveraged ETFs in May, products offering twice the daily performance of Samsung Electronics and SK Hynix shares were introduced. However, most of these ETFs have since fallen to less than one-third of their respective launch-date prices. Sonali Jain-Chandra, deputy director of the IMF’s Asia and Pacific Department, said at a briefing on Oct. 15 that South Korea was benefiting significantly from the AI industry’s expansion, but that this also meant the economy was becoming increasingly exposed to changes in the industry cycle. A correction in AI demand could lead to weaker exports, reduced investment and even lower government tax revenue, she explained. Although the IMF raised its growth forecast for South Korea this year to 3.3%, it also cautioned against overlooking the vulnerabilities associated with such concentration. Beyond a potential correction in AI-related equities, the IMF identified two other major risks to global financial stability: a sharp rise in government bond yields and cyber threats. Higher energy prices stemming from the war in the Middle East and large fiscal deficits in major economies are putting upward pressure on government bond yields. A sudden surge in yields could depress valuations across financial markets, including AI-related assets. Cyberattacks were also identified as a source of broader systemic instability as financial services become increasingly digitalized. The IMF consequently recommended institutional safeguards, including sector-specific capital requirements and investment limits. It called for measures to curb excessive AI-related borrowing, maintain government debt at sustainable levels and strengthen financial institutions’ cyber resilience. With advanced Asian equity markets, including South Korea and Japan, potentially facing particularly significant exposure to an AI investment correction, proactive risk management has become increasingly important.