KOSPI Drops 10% as AI and Semiconductor Hype Faces Correction

Original | Odaily Planet Daily (@OdailyChina)

Author | Qin Xiaofeng (@QinXiaofeng 888 )

Today, Asian stock markets experienced significant volatility.

The Korean Composite Stock Price Index (KOSPI) plunged more than 8% during trading, triggering a market circuit breaker that halted trading for 20 minutes; it ultimately closed down nearly 10% at 8,203.84 points, marking the third-largest single-day drop of the year. Japanese markets also came under pressure, with the Nikkei 225 falling approximately 3.5% to around 69,788 points, ending an eight-day winning streak; the TOPIX index declined about 2.6%.

This adjustment hit technology stocks, particularly the semiconductor sector, hardest, with major weights like Samsung Electronics and SK Hynix leading the decline and dragging down the entire market. Foreign investors accelerated their selling, causing trading volumes to surge significantly and market panic to intensify noticeably.

Since June, stock markets in Japan and South Korea have experienced multiple sharp fluctuations, with the Korean market triggering circuit breakers four times this year. Previously driven by the AI and semiconductor boom, the KOSPI once neared its historical high of 9,385 points, while the Nikkei 225 briefly surpassed 70,000. Within just a few weeks, the plunge from record highs to significant corrections highlights market fragility and mounting profit-taking pressure. Odaily Planet Daily will analyze this from three perspectives: market performance, underlying causes, and future trends.

At the open on June 23, the KOSPI opened at 9,083.54 points and briefly rose to 9,175.45 during the session. However, driven by foreign investor selling and follow-on selling pressure, the index quickly declined. Around 14:33 PM, an 8% drop triggered the Korea Exchange (KRX) circuit breaker, halting trading of all KOSPI component stocks for 20 minutes. Similar mechanisms had been activated on multiple occasions prior, including June 5 and 8, indicating that such volatility has become commonplace.

At close, the KOSPI stood at 8,203.84 points, falling 9.99% on the day, with trading volume surging to 48.371 billion shares. Semiconductor giants such as SK Hynix and Samsung Electronics led the declines, each dropping over 12%. The KOSDAQ index proved even more vulnerable, plunging more than 6% in tandem, as small-cap tech stocks collectively tumbled. Foreign investors recorded significant net selling, serving as the primary source of selling pressure.

The Japanese market responded with relative moderation, but the impact remains significant. The Nikkei 225 index fell more than 3% intraday, closing at approximately 69,788 points, a daily decline of about 3.47%, with the TOPIX index moving in tandem. Technology and semiconductor-related stocks performed the worst: SoftBank dropped over 10%, chipmaker Kioxia plunged 15.1%, and Tokyo Electron fell 6.2%. The AI and semiconductor sectors, which had previously driven the Nikkei’s rally, experienced a broad correction, ending an eight-day winning streak.

Compared to recent highs, this correction is striking. The KOSPI has fallen more than 12% from its mid-June peak, and the Nikkei 225 has significantly retraced from above 70,000.

Global markets are clearly interconnected: U.S. tech stocks faced broad pressure overnight, with the Nasdaq falling over 1% and the S&P 500 posting a modest decline; the “Magnificent Seven” saw rotation, with stocks like Amazon and Meta leading the losses; other Asian markets, such as Taiwan’s stock exchange, were also affected, triggering a regional tech sell-off.

Overall, this was a rapid and sharp correction led by the technology sector, with Korean stocks declining far more than Japanese stocks due to higher concentration.

The recent sharp decline in the Japanese and South Korean stock markets is the result of multiple factors working together, and can be analyzed through dimensions such as direct triggers, macroeconomic policy pressures, and structural risks.

1. Immediate catalyst: Weakness in U.S. tech stocks overnight and profit-taking pressure

The U.S. tech sector experienced a notable correction in the previous trading session, directly impacting Asian markets. The Nasdaq Index fell more than 1.2%, with significant rotation within the Magnificent Seven, putting pressure on several individual stocks.

Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, noted: "There is a clear rotation away from the Magnificent Seven, and news of executives or researchers leaving has intensified market concerns about the pace of AI commercialization. Investors are now demanding more evidence that massive AI capital expenditures can be translated into sustainable profits."

This concern quickly spread to the Korean and Japanese markets, which are highly dependent on the global AI supply chain. South Korea’s semiconductor exports have long accounted for more than 20% of total exports, with Samsung Electronics and SK Hynix together representing approximately 40% of the KOSPI’s weight. On June 23, both giants fell by about 8%-12%, directly dragging down the index.

In addition, since June, stock markets in South Korea and Japan have surged significantly, resulting in substantial accumulated profits. The KOSPI index rose from around 5,000 points at the beginning of the year to above 9,000 points by mid-June, achieving a peak intra-year gain of over 80%; the Nikkei 225 index also climbed from around 40,000 points at the start of the year to above 70,000 points, setting a new all-time high. Valuations are currently at elevated levels (the KOSPI’s forward P/E ratio once approached its historical peak), making any negative catalyst likely to trigger profit-taking—the concentrated selling on June 23 was a natural correction following rapid prior gains.

2. Macroeconomic and Policy Factors: Rising Expectations of Fed Rate Hikes and Impact of Economic Data

The latest U.S. employment data remained strong, further boosting market expectations that the Federal Reserve will maintain high interest rates or even raise them again. According to Reuters, non-farm payroll employment increased by 172,000 in May, significantly exceeding economists’ forecast of 85,000, while the unemployment rate held steady at 4.3%. This data prompted several institutions, including Goldman Sachs, to push back their expectations for the first rate cut to 2027. More critically, the Fed’s FOMC meeting on June 16-17 decided to keep the federal funds rate unchanged in the range of 3.5%-3.75%. The statement emphasized robust expansion in economic activity, but noted rising uncertainties due to conflicts in the Middle East and inflation remaining above the 2% target.

The Fed's latest dot plot signals a clear hawkish shift: the median forecast for the federal funds rate by end-2026 has been raised to 3.8% (up significantly from 3.4% in March, a 0.4 percentage point increase), suggesting at least one rate hike may occur this year. Meanwhile, the FOMC has raised its 2026 inflation forecasts: the median core PCE inflation forecast rose to 3.3%, and overall PCE inflation to 3.6% (both previously around 2.7%); GDP growth forecasts were slightly lowered to 2.2%.

Interest-rate-sensitive growth stocks, particularly in the technology and semiconductor sectors, have been hit hardest. Korean stocks, previously viewed as classic "high-beta" assets due to the AI boom, are highly sensitive to changes in global liquidity. Japanese stocks are also constrained by global liquidity expectations, although improving domestic wage growth data has provided some support.

A series of macro signals have significantly pushed up U.S. Treasury yields and pressured global risk assets, directly intensifying selling pressure on Japanese and South Korean tech stocks.

3. Structural risk: Excessive market concentration and foreign capital outflows

The structural vulnerabilities of the Korean stock market are particularly pronounced. The KOSPI is heavily reliant on two semiconductor giants, Samsung Electronics and SK Hynix; any fluctuation in the semiconductor cycle or global AI demand can cause significant volatility in the index.

Another key factor is the continued outflow of foreign capital. Foreign investors have realized substantial gains from the earlier rally, and since June, there have been multiple instances of net selling, particularly in Korean equities, with some funds potentially shifting toward U.S. IPOs (such as SpaceX) or other assets. On June 23, the scale of net foreign selling increased significantly, becoming the primary source of selling pressure.

In comparison, although the Japanese market was also weighed down by tech stocks, its sector dispersion was relatively higher, with the Nikkei 225 declining by approximately 3.5%.

In addition, specific company developments have intensified market pressure. According to market reports, SK Hynix has recently adjusted its production capacity allocation for AI chips—particularly HBM—redirecting some production lines toward higher-margin traditional DRAM to optimize short-term profitability. This move has sparked investor concerns about the short-term supply-demand balance for HBM, triggering selling pressure.

Looking ahead, the Japanese and Korean stock markets are expected to exhibit a pattern of "oscillating consolidation with structural divergence." Short-term market volatility will remain elevated, but medium- to long-term fundamental support persists, making pullbacks an opportunity to position in high-quality assets.

Short-term volatility remains dominant, and recovery depends on U.S. stock market trends and Federal Reserve signals. In the near term, markets are still in a period of high volatility and adjustment. The performance of U.S. tech stocks is a key indicator. If the Nasdaq index stabilizes or shows a technical rebound, markets in Japan and South Korea are likely to follow with recovery; conversely, if the Fed releases further hawkish signals or Q2 earnings from Japanese and Korean companies fall short of expectations, the correction may continue or intensify. Key events to watch:

• U.S. inflation (CPI/PCE) and employment data for June-July;
• The next FOMC meeting by the Federal Reserve (July);
• Second-quarter earnings of major stocks such as Samsung Electronics, SK Hynix, and Tokyo Electron.

Strong fundamental support in the medium to long term means pullbacks are opportunities. Global AI capital expenditures continue to grow rapidly, and the underlying logic of the semiconductor supercycle remains unchanged. According to projections from Goldman Sachs and other institutions, global AI-related capital expenditures (computing, data centers, power) from 2026 to 2031 are expected to total approximately $7.6 trillion, with AI CapEx alone reaching nearly $765 billion in 2026 and rising annually to $1.6 trillion by 2031. New data center capacity is projected to add nearly 100 GW between 2026 and 2030, with total investment reaching the trillions of dollars.

South Korea maintains a strong leadership position in HBM (High Bandwidth Memory) and advanced manufacturing processes. SK Hynix has consistently held an HBM market share of 50%-62%, and is expected to supply approximately 70% of HBM4 for NVIDIA’s Rubin platform; Samsung Electronics is also accelerating capacity expansion, with plans to increase HBM production capacity by about 50% by 2026. Major long-term orders for both giants are largely secured through 2027, and the supercycle of AI memory demand remains in its early stages.

From a long-term perspective, AI remains a productivity tool capable of reshaping the global landscape, and short-term adjustments cannot reverse the overarching trend of technological advancement. Just as every technological bubble in the past was eventually followed by corrections that delivered substantial rewards to true infrastructure builders and innovators, this “Black Tuesday” may well mark the turning point where AI investment shifts from frenzy to rationality, and from concept to reality. The resilience and potential of Japan and South Korea’s stock markets remain worth anticipating.