On Friday a heavy wave of selling swept South Korea’s stock market: the Kospi index fell nearly 9% intraday, triggering the exchange’s automatic mechanism which suspended trading for 20 minutes.
Collapse centered on chip stocks
The biggest losers were the chipmakers that dominate the market. Shares of Samsung Electronics and SK Hynix each dropped more than 10%, exerting an outsized influence on the broader market: the two companies account for roughly 60% of the Kospi, so their moves significantly affect the index.
Drivers of the decline
Market sentiment reversed quickly after Thursday’s AI-led rally. Several interconnected factors increased investor caution:
- Apple’s price increases due to memory-chip shortages signaled rising costs for AI development.
- Concerns surfaced that an initial public offering for OpenAI could be delayed, which would affect prospects for AI-related investments and stocks.
- Announced, potentially record-size investment programs by Samsung and SK Hynix heightened fears that the sector is becoming extremely capital intensive.
Together, these developments reinforced worries about the sustainability of the AI boom and about rising costs and investment needs pressuring chipmakers’ profitability.
Market structure and volatility
This year’s extreme volatility on the South Korean market is compounded by high-leverage retail trading and the popularity of leveraged ETFs tied to chipmakers. Those factors amplify rapid sell-offs because large price swings can prompt margin calls and forced deleveraging.
Consequences
The sharp drop and heavy losses in the market’s largest chip names led to the activation of the Kospi’s automatic trading suspension to help calm the market by briefly halting trading. Friday’s move underlined the volatile nature of the South Korean equity market this year and highlighted the investment risks linked to technology and AI-related sectors.
This article does not constitute investment advice or a recommendation.
