South Korean shares slump 5.2% as AI valuation concerns trigger chip stock selloff

South Korean shares fell sharply for a third consecutive session on Wednesday, with heavy losses in semiconductor stocks and growing concerns over AI-related valuations dragging the benchmark index into bear market territory.

The sharp decline followed an early rebound in the session.

Samsung Electronics rose as much as 1.4% during morning trading, while SK Hynix gained up to 5.8% before both stocks reversed course.

Market volatility was further amplified by concerns surrounding recently introduced leveraged exchange-traded funds linked to chipmaker stocks.

KOSPI falls more than 20% from record high

The benchmark KOSPI fell 395.76 points, or 5.17%, to 7,260.55 as of 0519 GMT.

The decline left the index more than 20% below its record closing high of 9,114.55 reached on June 22, a threshold commonly regarded as confirmation that a market has entered bearish territory.

Trading remained highly volatile throughout the session.

The KOSPI opened lower before recovering to trade as much as 1.8% higher.

However, the rebound proved short-lived, with the index reversing course to decline by as much as 5.3%.

The sharp intraday move triggered a sidecar trading curb, temporarily halting algorithmic trading to help stabilize market conditions.

Chipmakers lead declines after US semiconductor selloff

Semiconductor stocks remained at the center of the market decline following a sharp overnight sell-off in US chip shares.

Samsung Electronics fell 6.25%, while SK Hynix declined 3.59%.

The weakness followed a 4.7% drop in the Philadelphia Semiconductor Index as investors questioned whether spending on AI infrastructure could continue at its recent pace.

The broader pressure on Seoul's market reflected growing scrutiny of AI-related valuations, with investors increasingly focusing on whether future earnings can justify the sector's strong rally.

The government monitors market risks

South Korea's Finance Minister Koo Yun-cheol said authorities would closely monitor risk factors that could increase stock market volatility.

The comments came amid concerns over newly introduced single-stock leveraged ETFs tied to semiconductor companies.

The latest decline follows Tuesday's 4.9% fall in the KOSPI, which triggered a circuit breaker for the sixth time this year and the 12th time in the market's history.

Large swings in heavyweight semiconductor stocks have remained a key source of market instability.

Deputy Finance Minister Moon Ji-sung said supply and demand dynamics in the dollar-won market were expected to improve during the second half of the year.

According to Moon, pressure from foreign investor profit-taking and portfolio rebalancing should ease going forward.

He also pointed to expected demand for the South Korean won stemming from SK Hynix's planned US share sale, which is expected to be among the world's largest new equity offerings.

Foreign selling slows as the won strengthens

Foreign investors remained net sellers, offloading shares worth 487 billion won ($323.18 million).

However, the scale of selling was notably smaller than in recent sessions, when daily outflows reached the trillion-won level.

Meanwhile, the South Korean won strengthened 0.5% to 1,508.4 per US dollar on the onshore settlement platform after touching 1,505.2 earlier in the session, its strongest level since June 15.

Despite optimism surrounding SK Hynix's planned US listing, which has supported investor interest in high-bandwidth memory and AI-related supply chains, sentiment remained dominated by concerns over semiconductor valuations.