(Yicai) July 13 -- South Korea's soaring stock market, driven by memory chip stocks, has raised concerns that the country could repeat the mistakes of the 1997 Asian financial crisis. However, the current situation is fundamentally different from that of 1997, making a repeat of such a crisis unlikely.

South Korean semiconductor giant SK Hynix has recently completed a USD26.5 billion secondary listing on Nasdaq, setting a record among non-US companies and ranking as the world's second-largest share sale. Samsung Electronics, another memory chip maker, has risen more than fourfold, while South Korea's stock market has doubled over the past year.

In the 1990s, South Korea opened its capital account, triggering large inflows of short-term foreign capital. Conglomerates expanded rapidly by relying on short-term US dollar debt, resulting in a large trade deficit and heavy external debt. When the Asian financial crisis erupted, foreign capital fled, the won depreciated sharply, foreign exchange reserves plunged, and many South Korean companies defaulted on their debts. The country was forced to seek a USD58.3 billion rescue package from the International Monetary Fund and adopt the IMF's stringent austerity measures, pushing the economy into crisis.

Today, South Korea is at the forefront of the artificial intelligence industry chain. It runs a substantial trade surplus, has relatively low external debt, holds foreign exchange reserves about 14 times larger than during the 1997 crisis, and maintains a degree of capital controls.

The country's real risk lies in domestic debt and mismatched risk. Many retail investors are borrowing from banks under various pretexts to invest in stocks, taking on leverage far beyond what their incomes can support. If the stock market or credit conditions reverse, panic selling could easily follow.

The shortage of memory semiconductors is expected to persist for now. However, the semiconductor industry is highly cyclical, and overcapacity is likely to emerge within a few years. The biggest risks at present stem from excessive market speculation and the potential chain reactions that could follow if market sentiment turns.

The author of this article is Tao Dong, president and chief economist of investment adviser Springs Capital Hong Kong.

Editors: Zhang Yushuo, Emmi Laine