Samsung and SK Hynix drag the index down just as SK Hynix heads for a US$29 billion Nasdaq debut
South Korea's Kospi has fallen into a bear market, closing more than 20 percent below its late-June record as global investors retreated from the AI chip trade.
The Financial Times noted that the index is still the world's best-performing major benchmark this year despite the slide.
The benchmark fell 5.35 percent on Wednesday to finish at 7,246.79, its weakest close since May 20, Reuters reported, leaving it more than 20 percent under the record 9,114.55 it set on June 22, the threshold that confirms a bear market.
Trading was volatile: the index swung from a 1.8 percent gain to a 6.1 percent loss during the session, triggering a "sidecar" curb that briefly halted algorithmic trading.
A day earlier it had closed 4.9 percent lower and tripped a circuit breaker, the sixth this year and the 12th in the market's history.
Even after the pullback, the Kospi remains up more than 70 percent in 2026 following a gain of more than 75 percent last year, per CNBC, a run built largely on two stocks.
Samsung Electronics and SK Hynix accounted for more than half the index's weighting as of June, data from Emmer Capital showed, and both led Wednesday's decline, dropping 6.3 percent and 5.7 percent.
That reliance cuts both ways.
"South Korea's recent drawdown has been driven by heightened AI skepticism on the part of global investors, coupled with extreme market concentration," said Manishi Raychaudhuri, chief executive of Emmer Capital, in comments to CNBC.
Several analysts read the sell-off as a positioning washout rather than a break in the story.
The decline reflected crowded trades more than weaker fundamentals, Jung In Yun, founder of Fibonacci Asset Management Global, told CNBC, describing Korean equities as "one of the most crowded AI trades globally after a very strong rally, so it did not take much to trigger profit taking."
He called the move "a healthy reset rather than a fundamental change in the outlook."
The timing sharpened the point.
Samsung on Tuesday forecast a 19-fold jump in second-quarter operating profit, its third straight record quarter, yet its shares fell anyway.
Strong results can't be read entirely as good news, said Seo Sang-young, an analyst at Mirae Asset Securities, according to Reuters.
He said expectations had climbed too high to rise further, raising doubts that the high earnings would last.
Regulators have zeroed in on the products amplifying the swings.
Finance Minister Koo Yun-cheol pledged to monitor risks tied to newly launched single-stock leveraged ETFs linked to chipmakers, Reuters reported, while the Bank of Korea warned that such funds can magnify one-sided trading and deepen concentration.
Retail investors, who led the rally, have leaned into the downturn, with borrowed positions in Kospi shares near a record 29.7tn won as of Friday.
Chan Lee of Petra Capital Management said the selloff was "a necessary correction" after too steep and fast a rise, telling FT that opportunities could also open up outside AI.
The turbulence arrives days before SK Hynix, the country's second-most-valuable company, begins trading on the Nasdaq on Friday in an offering of about US$29bn, which FT reported would be the largest share issuance by an Asian company.
The debut gives North American investors direct access to the leading maker of the high-bandwidth memory used in Nvidia's AI chips, after a more than sevenfold rise in the stock over the past year lifted its market value to roughly US$1tn, according to CNBC.
The sell-off also revives a longer-running question for allocators.
MSCI kept South Korea classified as an emerging market last month, FT reported, citing the absence of a fully convertible offshore won market.
An upgrade to developed status could attract about US$30bn from passive funds, BNP Paribas Securities estimates.
But the country's index weighting would drop sharply, from about 24 percent of MSCI's emerging market benchmark to roughly 3 percent of the developed one, a shift NH Investment & Securities warned could drain capital from smaller stocks.
Underlying demand still looks firm, with memory prices up between 50 and 80 percent sequentially in the second quarter, said Rolf Bulk, head of semiconductors and infrastructure at Futurum Group, in comments to CNBC.
Even so, the sector's history tempers the optimism.
Daniel Newman, chief executive of Futurum Group, said memory follows this pattern in every supercycle, telling the outlet "it always crashes hard."
