Explained: 3 reasons why South Korea's Kospi crashed up to 8% today

South Korea's Kospi, the world's best-performing major equity benchmark in 2026, slumped up to 8% on Thursday, briefly triggering a sidecar trading curb as investors fled AI-linked stocks amid a rate hike and mounting concerns over leveraged single-stock ETFs.

Kospi dropped to a low of 6,731 on Thursday, snapping a two-session gaining streak. The index continues to remain in bear territory, as it has now fallen more than 28% from its June peak of 9,386. The recent selloff in South Korea’s stock market comes after a skyrocketing rally in tech stocks that pushed Kospi sharply higher. Despite the latest crash, the index is still up nearly 58% in 2026 so far.

Here are three key reasons why South Korea’s Kospi is plunging today.

Bank of Korea raises rates for first time in 3 years

South Korea's central bank on Thursday announced its first rate hike in more than three years, aiming to tighten the money supply to combat inflation worsened by the intensifying war in the Middle East and slow the growth of the country's high household debt. Following a monetary policy meeting, the Bank of Korea raised its benchmark policy rate from 2.5% to 2.75% in the first hike since January 2023.


Rising interest rates affect the stock market by typically making borrowing more expensive. This likely bears an impact on a company’s profits, which in turn affects its stock price.

Also read: BOK hikes rates for first time in 3-1/2 years, signals more

AI rally continues to fizzle out

Memory chip bellwethers SK Hynix and Samsung Electronics, which make up just over half of the benchmark Kospi, crashed as much as 12.5% and 10%, respectively, to push the stock market sharply lower.

The Kospi’s performance is closely tied to two chip giants, Samsung Electronics and SK Hynix, which together have contributed roughly two-thirds of its gains this year. As these stocks crashed, so did the Kospi. Samsung shares have fallen around 24% in one month, while SK Hynix plunged more than 21%.

Single-stock leveraged ETFs

South Korea's top financial regulator is set to announce new measures on single-stock leveraged exchange-traded funds soon, its chief said amid worries about the effects of such instruments on financial market stability.

The Financial Services Commission will "closely inspect and review improvement measures" on the ETFs soon, Chairman Lee Eog-weon said in a radio interview on ‌Thursday, when asked ⁠how the ⁠product affected the high volatility of South Korea's stock market. "This is basically a high-risk product," Lee said. "We have explained to investors its risks."

When asked whether the regulators are temporarily suspending trading in the product, Lee said such a measure could cause a "bigger side-effect" in markets. Leveraged ⁠ETFs have ‌been blamed for the massive swings in South Korea's stock market as most of them are tied to Samsung Electronics and SK Hynix, which ⁠together now account for just over half of the benchmark Kospi.

Also read: South Korea to unveil new measures for single-stock leveraged ETFs amid volatility concerns

(With inputs from agencies)

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