South Korea Stocks Plunge: AI Rally Reversal Hits Chip Giants

The South Korean stock market experienced a significant downturn on Monday, with the Kospi index dropping sharply. This decline, reaching as much as 8.8% early in the session, brought the gauge's fall from its recent high to approximately 15%, indicating a potential technical correction.

Leading the losses were major chip manufacturers, with Samsung Electronics and SK Hynix seeing their shares fall by 11% and 10% respectively. This steep decline in AI beneficiaries is attributed to a broad rotation out of technology stocks.

The sharp market movements necessitated the activation of a circuit breaker, temporarily halting trading. The Korea Exchange convened an emergency meeting to address the escalating volatility and explore measures for market stabilization.

Concerns about an overheated AI rally, coupled with macroeconomic uncertainties, have impacted global tech stocks. South Korea, having previously seen world-beating gains, is now experiencing disproportionately large losses, though the Kospi remains up 77% year-to-date.

This market pressure was exacerbated by foreign investors who net sold over $10 billion of Kospi shares in the preceding week alone. Consequently, the South Korean won depreciated to its weakest point against the US dollar since March 2009.

Analysts have warned of a potential "Black Monday" scenario due to the confluence of currency instability, interest rate adjustments, and semiconductor profit-taking. In response, the South Korean government unveiled targeted measures on Sunday to bolster the won, vowing firm action against speculative trading.