Korean ETF market participants rotated capital from semiconductor stocks into defense, healthcare, and software sectors last week as AI and semiconductor stocks entered a short-term adjustment phase. During this period, domestic ETFs received 2.0876 trillion won in net inflows, with semiconductor ETFs attracting the largest share at 2.3338 trillion won despite the sector rotation trend. Defense ETFs showed the strongest performance, with Korean defense ETFs rising 12.5% in one week, while global and European defense ETFs gained 9.9% and 8.7% respectively. The capital rotation occurred against a backdrop of rapid ETF market expansion, with total net assets reaching 512.4 trillion won at the end of last month—a 47.07% increase from the year-start figure of 348.4 trillion won and a 143.76% jump from the prior-year period of 210.2 trillion won, according to KOSCOM's ETF CHECK platform.
Korean ETF Market Net Assets Reach 512.4 Trillion Won
Domestic ETF net assets totaled 512.4 trillion won at the end of last month, representing a 47.07% increase from the beginning of the year (348.4 trillion won) and a 143.76% rise compared to the same period last year (210.2 trillion won), according to data from KOSCOM's ETF CHECK platform. The top ETFs by net assets included KODEX200, TIGER US S&P500, TIGER US Nasdaq100, and TIGER Semiconductor TOP10, indicating sustained long-term investment demand for US technology stocks and semiconductors.
Semiconductor ETFs Receive 2.3338 Trillion Won Amid Sector Rotation
Last week, domestic semiconductor ETFs attracted 2.3338 trillion won in inflows, ranking first among all categories. Global semiconductor ETFs also received 347.2 billion won during the same period. US Nasdaq100 and US S&P500 ETFs drew 323 billion won and 316.5 billion won respectively, demonstrating continued investor interest in US benchmark indices. However, recent market activity shows a shift in investor focus. Yoon Jae-hong, a researcher at Mirae Asset Securities, stated: "Amid expanding volatility in semiconductors, sector rotation is occurring centered on defense, healthcare, and software. US software and cybersecurity ETFs are also continuing their upward trend, attracting attention as new investment destinations after AI."
Defense ETFs Post Double-Digit Weekly Gains
Korean defense ETFs rose 12.5% over one week, while global defense ETFs and European defense ETFs gained 9.9% and 8.7% respectively. Securities firms assess the likelihood of earnings improvements in the defense sector as high, given ongoing geopolitical tensions and global defense budget expansion. While AI investment expansion is expected to drive continued mid-to-long-term investment in power infrastructure and data centers, short-term capital is rotating from semiconductors—which have already seen significant gains—into other sectors.
Q2 Earnings Season and US Tariff Policies Draw Investor Attention
The Q2 earnings season begins this month, starting with the US and followed by major companies in Asia and Europe. Concerns exist that stock price volatility may increase if results fall short of expectations, particularly for AI, semiconductor, and big tech companies that saw substantial share price gains in the first half. Kim Jin-young, a researcher at Kiwoom Securities, explained: "With Samsung Electronics' Q2 preliminary earnings announcement and SK Hynix's US ADR listing scheduled, these semiconductor-related events will serve as a watershed moment to confirm whether the AI investment cycle continues." Choi Bo-won, a researcher at Korea Investment & Securities, stated: "This month, there is a possibility of additional tariff announcements based on US trade law sections 122 and 301, followed by subsequent measures from each country in response. Changes in tariff policy can increase volatility in exchange rates and government bond yields, potentially affecting global stock markets."
Analysts Recommend Defensive ETF Strategies for Volatility Management
Analysts advise combining growth stocks with defensive ETFs to reduce volatility in the second half. Park Woo-yeol, a researcher at Shinhan Investment & Securities, stated: "In phases where market volatility expands like recently, diversified investment using dividend, covered call, and low-volatility ETFs is more effective than sector concentration. In highly volatile markets, risk management is more likely to determine long-term returns than leveraged investment."
FAQ
What happened in the Korean ETF market last week?
Last week, the Korean ETF market received 2.0876 trillion won in net inflows, with semiconductor ETFs attracting the largest share at 2.3338 trillion won. However, investors began rotating capital into defense, healthcare, and software sectors as AI and semiconductor stocks entered a short-term adjustment phase. Korean defense ETFs rose 12.5% during this period.
Why are investors rotating from semiconductor to defense ETFs?
Investors are rotating capital because semiconductor stocks, which have already seen significant gains, entered a short-term adjustment phase. Securities firms assess the defense sector's earnings improvement potential as high due to ongoing geopolitical tensions and global defense budget expansion. This represents a typical sector rotation pattern where capital moves from sectors that have risen substantially to sectors with emerging growth potential.
