South Korea's KOSPI Enters Bear Market As AI Rout Deepens, Index Falls Over 20% From Peak

South Korea's benchmark KOSPI index entered bear market territory on Wednesday after tumbling more than 5%, extending a sharp technology-led selloff that has rattled investors over the past two sessions.

The KOSPI closed 409.52 points, or 5.35%, lower at 7,246.79, its weakest finish since May 20. The decline leaves the index more than 20% below its record closing high of 9,114.55 on June 22, a threshold widely regarded as confirming a bear market.

The benchmark witnessed another volatile session, opening lower before briefly rebounding as much as 1.8%. Selling pressure intensified through the day, with the index falling as much as 6.1%, prompting the Korea Exchange to activate a "sidecar" trading curb that temporarily halted algorithmic trading.

The latest decline follows Tuesday's 4.9% slide, when the KOSPI also triggered a market-wide circuit breaker for the sixth time this year and only the 12th time in its history.

AI And Semiconductor Stocks Under Pressure

The selloff was once again led by heavyweight semiconductor stocks after weakness in US chipmakers reignited concerns about the sustainability of the artificial intelligence-driven investment cycle.

Shares of Samsung Electronics fell 6.3%, while SK Hynix declined 5.7%. The weakness followed an overnight drop in US semiconductor stocks, with the Philadelphia Semiconductor Index falling 4.7% as investors questioned whether the current pace of AI-related spending can be sustained.

"There seems to be spill-over effects from a slump in the previous session, which came despite Samsung Electronics' strong earnings, while there are worries about a slowdown in memory price growth and uncertainty over an earnings 'peak-out'," Han Ji-young, an analyst at Kiwoom Securities, told Reuters.

The sharp correction comes after months of strong gains fuelled by enthusiasm surrounding AI infrastructure spending. However, concerns over lofty valuations, slowing memory pricing and the durability of semiconductor earnings have triggered aggressive profit booking across the sector.

Authorities Monitor Volatility As Foreign Selling Eases

The sharp swings have also drawn the attention of South Korean policymakers.

Finance Minister Koo Yun-cheol said authorities would closely monitor factors that could amplify market volatility, including recently introduced single-stock leveraged exchange-traded funds (ETFs) linked to semiconductor companies.

Despite the market decline, foreign investors turned net buyers on Wednesday, purchasing shares worth 335.9 billion won ($223.86 million) after remaining net sellers for 13 consecutive sessions.

Deputy Finance Minister Moon Ji-sung said supply-demand dynamics in the dollar-won market are expected to improve in the second half of the year as pressure from foreign investors' profit booking and portfolio rebalancing eases.

He also pointed to expected dollar inflows linked to SK Hynix's planned US share sale, which is set to be one of the world's largest equity offerings.

The South Korean won strengthened past the 1,500-per-dollar level, rising 1.2% to 1,498.5 against the US dollar on the onshore settlement platform, its strongest level since May 29.