South Korea's biggest market strength is starting to look like its biggest vulnerability. On-again-off-again appetite for artificial-intelligence trades is fueling volatility in the country's benchmark Kospi index, with swings driven by the stocks of two chip makers central to the global AI build-out. Together, Samsung Electronics and SK Hynix account for over half of the index, tying the broader market's fortunes to the two semiconductor giants.

Korean authorities are working to restore order, with President Lee Jae Myung telling regulators to implement measures to curb speculative trading, "quickly and aggressively." But analysts say it will be difficult to keep AI-driven volatility in check. The countermeasures, including tighter rules on single-stock leveraged exchange-traded funds, should help moderate some of the most excessive speculative activity.

However, financial markets are by nature adaptive, and investors can adjust to the higher cost of short-term trading, said Marcus Weyerer, director of ETF investment strategy at Franklin Templeton. For KB Financial Group's Peter S. Kim, regulatory moves are unlikely to do much to dislodge Korea's entrenched culture of fast-money investing. Since the launch of single-stock leveraged ETFs on May 27, Korean individual investors have poured about $9.45 billion into the products, often tracking chip makers. Foreign investors' net purchases stand at $1.35 billion.