South Korea's benchmark KOSPI index has experienced a significant downturn, falling almost 11% over the past five trading sessions. The index, heavily weighted by technology and semiconductor companies, saw its sharpest daily drop on Tuesday, plunging as much as 8.22% to an intraday low of 7,389.22 before paring some losses to close 4.91% lower at 7,656.31.
Semiconductor Giants Lead the Decline
The correction was primarily driven by heavyweight semiconductor stocks, notably Samsung Electronics and SK Hynix. These two companies alone account for over half of the KOSPI's total market capitalization. Samsung Electronics, despite reporting a nineteen-fold increase in profit, saw its shares fall 6.92%. SK Hynix also declined 6.06% following the launch of its proposed US listing's marketing process.
Investor sentiment has been dampened by growing concerns that the rapid rally in AI-related companies may have pushed valuations beyond their underlying fundamentals. AI-linked stocks have shown considerable volatility as investors question their sustainability.
Broader Market Weakness and Regulatory Warnings
The selling pressure was not confined to South Korea. Other Asian markets also registered declines, with Hong Kong's Hang Seng index slipping 0.51%, China's Shanghai Composite Index down 1.26%, Taiwan's Taiex falling 2.31%, and Japan's Nikkei 225 dropping 2.04%.
Adding to investor caution, South Korea's market regulator has previously voiced concerns. Last month, Lee Chan-jin, head of the country's market watchdog, suggested that authorities might have approved leveraged funds linked to leading chip stocks too quickly. Regulators have also warned retail investors about the risks of excessive leverage in the stock market.
Despite Correction, KOSPI Remains Up Year-to-Date
Despite the recent sharp sell-off, the KOSPI index still boasts a substantial 77.66% gain on a year-to-date basis. Meanwhile, market strategists are observing the impact of the global chip trade's weakening. V K Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the significant correction in the KOSPI could potentially encourage Foreign Portfolio Investors (FPIs) to consider increasing their investments in India.