AI trade unwind sparks 8% Kospi plunge

On Monday in Seoul the Kospi fell more than 8% shortly after the opening bell, prompting the Korea Exchange to impose a temporary 20-minute trading halt. The index later recovered some losses but posted a sharp intraday decline.

Shares of Samsung Electronics and SK Hynix drove large swings. Both fell to session lows before bouncing back, contributing to volatility in the benchmark index.

Traders reduced positions in crowded artificial intelligence and semiconductor trades. Profit-taking followed a weak US technology session late last week and concern about higher US interest rates added selling pressure.

Single-stock leveraged exchange-traded funds tied to semiconductor names have grown in popularity, particularly products linked to SK Hynix. These funds rebalance daily and can require buying or selling of the underlying shares, which can magnify price moves on fast market days.

Margin debt in South Korea reached a record high at the end of May, reflecting increased use of borrowed funds in recent gains. An options-based volatility gauge in Korea has remained elevated relative to comparable US measures through much of the year.

Foreign investors withdrew more than $10 billion on a net basis in the week before the sell-off and extended net selling on Monday. The won recovered from recent weakness after authorities announced measures to support the currency.

Regulators and market operators held an emergency meeting to assess market conditions and consider steps to maintain orderly trading.

Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, described the event as a technical correction within a longer-term uptrend and noted that industry fundamentals remain supportive. Jung In Yun, chief executive of Fibonacci Asset Management Global, called the drop a normal consolidation after a period of rapid gains.

Recent cooperation between a leading US AI chipmaker and SK Hynix on next-generation memory technology and continued capital spending by large cloud and AI companies are cited by market participants as factors affecting demand for advanced memory products.