By Sangmi Cha

(Bloomberg) -- A global rush to secure memory chips for artificial intelligence is powering a renewed surge in South Korean equities, with chipmakers leading a rebound that pushed the Kospi to a fresh record on Tuesday.

Samsung Electronics Co shares jumped 11% on Korea Exchange, the most since 2008, while SK Hynix Inc. added more than 9%. Both stocks recouped losses from the previous session. The benchmark Kospi climbed nearly 7%, extending its gain for the year to 25% and solidifying its status as the world’s best-performing equity index.

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Up more than 39% each this year, the chip duo have continued to set new records as investors embrace AI’s voracious demand for memory chips. Despite the torrid gains, few analysts see them as expensive thanks to strong earnings momentum and still-reasonable valuations.

“The structural shortage in memory chips makes the continued growth of Samsung and SK Hynix inevitable,” said Kim Namho, a fund manager at Timefolio Investment Management in Seoul.

Trading is becoming more erratic as the chipmakers extend last year’s huge rallies, however, with daily newsflow spurring investors to sell one day and buy the next.

Risk appetite rebounded in Asia as markets got positive tailwinds from solid US factory data and a calming of the selloff in precious metals. Sentiment had been hit in previous sessions as traders mulled the pick for Federal Reserve chair along with ongoing worries on geopolitical tensions and the sustainability of the AI boom. Korean stock volatility spiked to the highest since 2020 on Monday.

“We view yesterday’s volatility in the Korean equity market as a healthy digestion of gains,” said Sojung Park, a portfolio manager at Matthews International Capital Management. “From an earnings growth and valuation perspective, we remain positive on Korea.”

Local institutions were the main drivers of Tuesday’s bounce in Seoul, and foreign funds also bought stocks on a net basis, while retail investors sold. Buy orders for program trading were briefly halted after Kospi 200 futures jumped more than 5%.