Key facts
- South Korea's KOSPI index has fallen 9% in two sessions, marking a sharp reversal from its rally.
- AI-driven semiconductor stocks, previously the market's darlings, are facing profit-taking and increased volatility.
- Retail investors have hit borrowing limits at brokerages, with leveraged investments reaching a record 29 trillion won.
- Rising U.S. inflation and geopolitical tensions in the Middle East are contributing to market pressure.
- The KOSPI had been the world's top-performing index, up 76% year-to-date before the recent pullback.
South Korea's KOSPI index has experienced a dramatic 9% plunge over two sessions, reversing a strong rally that had positioned it as the world's top-performing stock market. The sell-off is largely attributed to profit-taking in AI-driven semiconductor stocks, which had previously fueled the market's ascent.
Concerns that the rally may have outpaced fundamental valuations have intensified, particularly for companies like Samsung Electronics and SK Hynix, which are central to the AI supply chain. Market volatility has been amplified by the popularity of leveraged exchange-traded funds linked to these chipmakers, pushing the KOSPI 200 volatility gauge to a record high.
Adding to the pressure are rising U.S. inflation figures, with the Consumer Price Index increasing 4.2% year-on-year in May, potentially leading the Federal Reserve to maintain higher interest rates. Geopolitical tensions in the Middle East, including Iran's announcement of closing the Strait of Hormuz, have further dampened investor sentiment and raised concerns about energy prices.
Retail investors, who had heavily participated in the rally through borrowed funds, have now reached their investment limits at brokerages, with leveraged investments hitting a record 29 trillion won. This contrasts with foreign investors who have been selling shares for profit-taking.