A dramatic pre-market plunge rocked Seoul as South Korea's benchmark Kospi index fell by as much as 8.8%, forcing a temporary trading halt. The culprit? A sudden, sharp retreat in the high-flying artificial intelligence stocks that have powered the market.
A Brutal Opening Bell
The South Korean stock market experienced a dramatic shock on Friday, November 6, as the benchmark Kospi index plummeted 8.52% shortly after the opening bell, falling to 4,924.61. The staggering drop immediately triggered a first-level circuit breaker, halting all trading for 20 minutes to prevent a wider panic. This was the eleventh such circuit breaker activated this year, a sign of the recurring volatility in the market. The move saw the index crash below the psychologically significant 5,000-point mark for the first time in nine months. Although the index pared some losses later, it closed down 6.02%, capping a brutal week where it lost over 11% of its value. The sell-off was not isolated, as the tech-heavy Kosdaq market also saw trading curbs activated.
The AI Darlings Stumble
The epicentre of the market tremor was the country's semiconductor giants, which have become global darlings of the AI boom. Samsung Electronics, the world's largest memory chip maker, saw its shares dive by as much as 11% in early trade, while its rival SK Hynix plunged nearly 12%. Together, these two behemoths account for nearly half of the Kospi's total market value, meaning their performance has an outsized impact on the entire index. Their fall from grace was swift; both companies are key suppliers of high-bandwidth memory (HBM) chips, essential components for AI accelerators like those made by Nvidia. The very sector that had propelled the Kospi to become one of the world's best-performing markets earlier in the year was now dragging it down.
An American Cold Spreads to Asia
The catalyst for the sell-off originated thousands of miles away on Wall Street. The rout followed a massive plunge in US tech stocks, where the Nasdaq had its worst day in over a year, falling 5.5%. The Philadelphia Semiconductor Index collapsed by a staggering 12.25%. This was driven by investor fears following the US midterm elections, where a Democratic sweep of Congress fueled concerns of tighter regulations on the AI industry, particularly regarding the construction of new, energy-intensive data centres. With companies like Nvidia, AMD, and Micron experiencing double-digit declines, the contagion quickly spread to their South Korean suppliers. Foreign investors, spooked by the policy uncertainty, led the charge, offloading a massive 10.56 trillion won (approx. $7.8 billion USD) in South Korean stocks over the week.
An Overheated Market Corrects
While the US election results were the immediate trigger, the selloff also highlights broader anxieties about the skyhigh valuations of AIrelated stocks. After a phenomenal rally, investors have grown increasingly nervous about the sustainability of the AI boom, the high cost of financing its infrastructure, and the potential for a market bubble. Many retail investors in South Korea had borrowed heavily to invest in tech stocks, leaving them vulnerable to margin calls when prices fall. In response to the crash, the South Korean government convened an emergency meeting, with Finance Minister Lee HyoungIl stating that the market was 'overreacting to external factors'. To prevent a cascade of forced selling, authorities announced a temporary, threemonth waiver on collateral rules for brokerage firms.
