KOSPI plunges 8% on concerns over end of chip earnings cycle, interest rate hike

KOSPI and Kosdaq are displayed on a screen in the dealing room of Hana Bank headquarters in Seoul, Monday. The benchmark KOSPI closed at 7,484.41, down 676.18 points, or 8.29 percent, while the secondary bourse Kosdaq ended at 911.39, down 91.05 points, or 9.08 percent. Yonhap

Korean stocks tumbled Monday, as a broad-based correction in global semiconductor shares triggered heavy selling across the market, prompting the activation of both sidecar trading curbs and circuit breakers on the KOSPI and Kosdaq markets.

Attention is centered on whether KOSPI, which has staged a record-breaking rally this year, can resume its upward trajectory after a short-term correction or whether market volatility will intensify further.

The benchmark KOSPI opened 112.50 points, or 1.38 percent, lower at 8,048.09 before extending its losses throughout the session to close at 7,484.41, down 676.18 points, or 8.29 percent.

The index reached an all-time intraday high of 8,933.62 on June 2. After plunging 5.54 percent on Friday, the KOSPI posted losses for a second consecutive session, underscoring growing concerns over a pullback in semiconductor stocks that had fueled the market's recent rally.

Amid heavy selling pressure, trading restrictions kicked in shortly after the market opened, with a Level 1 circuit breaker triggered at 9:03 a.m. and a sell-side sidecar activated at 9:34 a.m.

Circuit breakers are emergency measures that temporarily suspend trading across the entire market when the KOSPI or Kosdaq drops by 8 percent, 15 percent or 20 percent from the previous session's close and remains below those levels for at least one minute.

Trading is halted for 20 minutes under the first and second stages, while a third-stage trigger results in a market shutdown for the remainder of the trading day.

When the circuit breaker was triggered, KOSPI was down 685.85 points, or 8.40 percent, at 7,474.74. It was the third circuit breaker activated on the KOSPI this year and the ninth since the mechanism was introduced. The sell-side sidecar marked the 11th activation on record.

Compared with sidecars, circuit breakers are invoked only under more severe market conditions and are therefore relatively rare. The latest trigger came amid a convergence of negative factors, including a weaker won, mounting concerns over additional interest-rate hikes amid elevated inflation and a steep sell-off in major semiconductor stocks on fears that the industry's earnings cycle may have peaked.

The last two times both a sell-side sidecar and a circuit breaker were activated on the KOSPI on the same day were March 4 and 9, when global financial markets were rattled by the recent outbreak of the U.S.-Iran war.

The secondary Kosdaq market also came under heavy selling pressure, opening 42.83 points, or 4.27 percent, lower at 959.61. Losses deepened throughout the session, with the junior bourse closing at 911.39, down 91.05 points, or 9.08 percent, from the previous day.

A sell-side sidecar was triggered on the Kosdaq at 9:06 a.m. as selling accelerated. Later in the day, a circuit breaker was activated for 20 minutes beginning at 2:35 p.m., temporarily halting trading across the market.

It marked the second circuit breaker activation on the Kosdaq this year, following the previous occurrence on March 4.

Analysts attributed the steep decline in Korean equities to growing investor concerns that the semiconductor earnings cycle may have peaked following Broadcom's latest earnings report. Expectations for additional interest rate hikes by the U.S. Federal Reserve later this year also dampened risk appetite, while uncertainty surrounding the upcoming initial public offering of SpaceX added to the cautious mood.

Domestic stocks were particularly vulnerable to a correction after posting outsized gains in recent months. As of last week, the KOSPI climbed more than 60 percent from early April, fueled largely by strong advances in Samsung Electronics and SK hynix. The market's heavy reliance on a handful of semiconductor giants left it more exposed when sentiment toward the sector turned negative.

Adding to the pressure were substantial net sales by foreign investors and a sharp depreciation of the won.

On Monday, the Korean currency opened at 1,555.2 won per dollar, weakening by 16.1 won from the previous session and marking its worst level against the U.S. currency in 17 years and three months. The won subsequently rebounded to close onshore trading at 1,535 per dollar, improving 4.1 won from the previous session.

The rebound came after financial authorities stepped up verbal intervention in the foreign exchange market, pledging to respond firmly to excessive volatility and speculative trading.

In a joint statement, the Ministry of Finance and Economy and the Bank of Korea said recent fluctuations had been amplified not only by market supply and demand but also by speculative transactions such as non-deliverable forwards, adding that they would not tolerate movements deemed excessive relative to economic fundamentals or one-sided market conditions.

Despite the sharp market decline, many analysts argued that the selloff reflected profit-taking after an extraordinary rally rather than signaling the end of the artificial intelligence (AI)-driven boom.

"Key growth drivers for the industry remain firmly in place, including the expansion of HBM4 supply chains and anticipated shipments of next-generation high-performance GPUs," Kim Joong-won, an analyst at Hyundai Motor Securities, said. "The recent pullback appears to be a short-term adjustment in market expectations rather than evidence that the AI investment cycle is coming to an end."