Kospi Plunges Over 7% Below 6,000 as Chip Sell-Off Triggers Trading Curb

South Korea's stock market suffered one of its worst sessions of the year on Tuesday. The benchmark Kospi fell more than 7% by midday to around 5,914, its lowest level since late July, as foreign investors dumped the country's two chip giants. The fall below the 6,000 mark triggered a sell-side trading curb, the first in about two months.

Samsung Electronics fell about 7.7%, and memory chipmaker SK Hynix dropped nearly 9%. Together the two companies make up a large share of the index, so their losses drove most of the decline.

A Two-Day Rout

Tuesday's drop extends a sell-off that began on Monday, when the Kospi closed 3.65% lower at 6,384.24. Analysts linked part of Monday's fall to rebalancing by semiconductor-focused exchange-traded funds and to concerns that Samsung and SK Hynix may have finished their share buyback programmes, removing a source of support for the stocks.

The scale of the reversal is striking. The Kospi crossed 9,000 and hit a record high in June, driven by global demand for chips used in artificial intelligence. It has now lost more than a third of that value.

The China Factor

A big worry for traders is competition from China. Reports on the latest advances by ChangXin Memory Technologies (CXMT), a Chinese memory chipmaker, raised fears that it could increasingly challenge Samsung, SK Hynix and US rival Micron in the memory market. Memory chips have been one of the biggest winners of the AI boom, so any sign of new competition hits these stocks hard.

The sell-off also followed a weak night for chip stocks on Wall Street. The tech-heavy Nasdaq fell about 0.5% on Monday, dragged down by chipmakers as investors questioned how long the AI rally can last amid rising US-China competition.

Oil and Bond Yields Add Pressure

The broader backdrop is not helping. Brent crude was trading near $106 a barrel, close to a two-week high, as Houthi attacks on Saudi Arabia kept supply risks alive. Higher oil feeds inflation, which keeps bond yields high and makes expensive growth stocks less attractive. The US 10-year Treasury yield was around 5.2%, near the 24-year high of 5.364% it touched last week.

The pain spread across Asia. MSCI's broadest index of Asia-Pacific shares outside Japan fell about 2% in early trade. Japan's Nikkei 225, returning from a holiday, fell about 2.5% to roughly 67,292, with chip equipment maker Tokyo Electron down 6.6%. The US dollar stayed near an 18-month high, and the yen traded around 158.5 per dollar.

What Comes Next

Investors are now looking to the start of the US earnings season. JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo report results later on Tuesday, and markets will watch them for signs of how high interest rates are affecting lending and dealmaking. For Seoul, the key question is whether foreign selling of chip stocks eases, or whether the AI-driven rally of the past year is unwinding further.

India's market held up better in early trade, with benchmark indices rising on gains in IT stocks even as Asian peers slumped.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.