KOSPI Drops Below 5,000 as US AI Rout Hits Seoul

The KOSPI index in South Korea dipped under 5,000 on Friday, a level not seen since February. A sell-off of 8% right after the market opened set off a circuit breaker, leading to a 20-minute trading halt.

Among the hardest hit were SK Hynix investors. The company’s shares fell 11.71% to 1,116,000 won, despite having announced record quarterly sales last week.

How the AI Sell-Off on Wall Street Reached Seoul

The decline originated in New York. On Thursday, the S&P 500 lost 4.36%, and the Nasdaq declined 5.52%. Chip stocks experienced even larger losses, with the Philadelphia Semiconductor Index tumbling 12.25%, its biggest single-day fall since March 2020.

Three factors behind that sell-off were cited by BeInCrypto:

• Newly elected governors in Texas, Georgia, and Ohio have promised to halt or limit construction of new data centers.
• Qualcomm saw a 26% decline in sales of phone chips, which fell short of analysts’ forecasts.
• Concerns about AI spending were already mounting before the week started.

South Korean chipmakers are directly exposed to all three of these pressures. SK Hynix supplies a significant amount of high-bandwidth memory (HBM) for AI accelerators.

Samsung Electronics shares also dropped 9.98% to 181,400 won during early trading. These two memory manufacturers together represent about 50% of the KOSPI’s total market value.

The turmoil in Seoul began a day prior. On Thursday the KOSPI declined 5.28%, with overseas investors offloading over 3.4 trillion won worth of stocks.

What the KOSPI Trading Halt Reveals About South Korea’s Reliance on Chips

The Korea Exchange activated the trading halt at 9:03 a.m., just three minutes after the bell. A Stage 1 circuit breaker stops all trading if the index drops at least 8% from its prior day’s close and stays there for one minute.

This was the 11th such halt this year. The last one occurred on October 15, following higher-than-expected US inflation figures.

Around the same time, the KOSDAQ, which is heavy on tech stocks, set off a sell-side sidecar at 9:06 a.m. That system halts automated program trades for five minutes.

Japan’s Nikkei 225 suffered a more modest drop, declining 5.69% to 57,605.59 as of 9:36 a.m. in Tokyo.

On October 30, the KOSPI also fell more sharply than the Nikkei, after a scare over Alphabet’s spending reverberated through chip shares. The recurrence indicates that South Korea’s chip-dominated index amplifies every US tech sector jolt.

South Korea’s stock exchange has now paused trading twice in less than a month on the back of US news: first inflation numbers, and now an election. Unless US state governors and Congress provide clarity on data center regulations, policy headlines could drive the KOSPI as much as corporate earnings.