South Korea stock market drops 5 percent as AI and chip stocks slide

South Korea's benchmark KOSPI index fell 5 percent on Tuesday, deepening a broader market sell-off driven by growing worries over artificial intelligence spending, high chip valuations, and rising loan costs.

Market Losses

The index dropped to 5,493.24, which is 39 percent lower than its peak of 9,386 earlier this year. The market previously hit a record close in June with gains touching 116 percent, but subsequent corrections have reduced its total 2026 gains to about 30 percent. The market also suffered a 22 percent drop in July and lost another 17 percent through October 16.

Chip and Tech Impact

Semiconductor stocks took the hardest hit because they make up a massive portion of the South Korean market. SK Hynix shares dropped about 35 percent from their peak, while Samsung Electronics fell roughly 22 percent. Elice Inc, a newer data-centre infrastructure company, fell by as much as 32 percent during its Seoul trading debut. This follows a global tech sell-off that erased over $1 trillion in market value from twenty major AI and chip firms last week. South Korea is particularly vulnerable because Samsung Electronics and SK Hynix together made up 44 percent of the KOSPI in May.

External Pressures

Stronger-than-expected US inflation data has fueled uncertainty and revived expectations of interest rate hikes, which increases borrowing costs for growth stocks. OpenAI recently told investors that its September annualised revenue was nearly $50 billion, falling short of an earlier figure near $70 billion. Broadcom chief executive Hock Tan warned that capital could soon constrain AI expansion more than a lack of chips or electricity. VT Markets principal analyst Daniel Munday noted that hot US consumer prices revived Federal Reserve hike bets and hit Asian markets hard. Jefferies global head of equity strategy Chris Wood cited a quantitative strategy warning that investors should diversify beyond the AI trade as global AI earnings growth slows from nearly 100 percent in 2026 down to 30 percent in 2027 and 22 percent in 2028.

Context

South Korea's heavy reliance on a few giant technology firms makes its stock market especially sensitive to shifts in global technology demand and investor sentiment. When global tech shares face funding pressures or valuation corrections, export-driven economies in Asia often experience the fastest and sharpest capital outflows.