South Korea's Kospi plunges 8%, extending a two-day slide. What's unsettling the world's hottest market?

South Korean stocks extended their steep decline on Thursday, with the benchmark index tumbling as much as 8.2% (687 points), marking a second straight day of losses and taking the cumulative drop over the two sessions to 10%. The selloff gathered pace after Meta Platforms Inc.'s plans to sell computing power raised concerns about excess AI capacity, triggering a sharp fall in semiconductor stocks.

Weakness in U.S. technology shares overnight further weighed on sentiment across Asian markets. In the U.S., chipmakers Micron Technology Inc. and Sandisk Corp. had both ended the previous session down more than 10%.

Also read: South Korea's KOSPI index tops 9,000 for first time as chipmakers rally

What pulled Kospi down?

Among the biggest losers, SK Hynix Inc. slumped more than 14%, while Samsung Electronics Co. fell over 9%. The Korea Exchange temporarily halted trading for 20 minutes after activating market circuit breakers, which have been triggered more frequently this year amid heightened volatility. The two companies together make up more than half of the index.


Despite the recent correction, the KOSPI remains the world's best-performing major stock index in 2026, having gained 77% so far this year, largely on the back of a rally in semiconductor companies benefiting from the artificial intelligence boom.

AI unwinding soon?

The latest selloff has intensified concerns over whether the rally in AI-linked semiconductor stocks can be sustained. Korean chipmakers have been among the biggest beneficiaries of strong global demand for advanced AI hardware, but recent market swings highlight how quickly investor sentiment can reverse when doubts emerge over the long-term outlook for the sector.

Adding to the pressure was news that Apple Inc. is in talks to source chips from two Chinese semiconductor companies, raising concerns that Samsung Electronics and SK Hynix could face increasing competition.

"Meta considering selling its 'excess compute' suggests it may be struggling to find a good use for it or may have overbuilt," Vey-Sern Ling, managing director at Union Bancaire Privee, told Bloomberg. "That would have negative implications for the 'picks and shovels'" in markets such as Korea, he said.

Even before the latest decline, signs of overheating had begun to emerge. Shares of SK Hynix had surged nearly 223%, significantly outperforming Samsung Electronics, whose stock had risen 123%. Market experts suggest that the rally has blown well over fundamentals.

Read more: World’s hottest market has Korea bulls reaching for protection

US Fed’s bitter blow

Investor sentiment was also weighed down by expectations that the U.S. Federal Reserve could tighten monetary policy more aggressively under its new Chair Kevin Warsh. On Wednesday, Warsh reiterated his commitment to the central bank's 2% inflation target and said he would "disappoint" those expecting easier monetary policy despite President Donald Trump's calls for interest rate cuts. Traders are currently assigning a 70% probability to a rate hike at the Fed's September 15-16 meeting.

Demand for AI infrastructure has exploded over the past year as technology companies worldwide race to build advanced AI models and expand computing capacity. The boom triggered a wave of orders for high-bandwidth memory chips, prompting investors to aggressively pile into Korean chipmakers that stand at the centre of the global AI supply chain.

While South Korea has led global equity markets this year, its heavy dependence on a handful of semiconductor companies has left it particularly vulnerable to sharp shifts in sentiment around the AI sector.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)