Korean Stocks Plummet Amid Widespread Selling of Tech Equities

South Korean Stocks Plunge Amid AI Rally Rotation and Currency Volatility

South Korean stocks experienced a sharp decline on Monday, led by significant losses in chipmakers, as investors rotated out of artificial intelligence beneficiaries. The Kospi, a key gauge of the South Korean stock market, sank as much as 8.8% early in the day, bringing its decline from its recent peak to approximately 15%. This drop has raised concerns that the market may be poised to enter a technical correction.

The decline was particularly steep for memory makers, with Samsung Electronics Co. falling as much as 11% and SK Hynix Inc. sliding 10%. The sudden plunge triggered a circuit breaker, halting trading. In response, the Korea Exchange held an emergency meeting on Monday to assess rising volatility and discuss measures to ensure stable market operations.

The decline in South Korean stocks is part of a broader trend of outsized losses following the market's world-beating gains. Despite the decline, the Kospi remains up 77% since the start of the year. However, foreign investors have been fleeing the market, selling more than $10 billion worth of Kospi shares on a net basis last week alone. This has put pressure on the won, with the currency touching its weakest level against the dollar since March 2009.

Read also: Nifty Falls Over 260 Points, Suggests Weak Market Open Amid Global Selloff and Middle East Tensions

The South Korean market faces significant risks, including a potential "Black Monday" event, according to Kim Doo-un, an analyst at Hana Securities. This scenario could be triggered by currency instability, interest-rate repricing, and profit taking in semiconductors all occurring simultaneously.

In response to the market volatility, the government has laid out a series of targeted measures to bolster the won. These measures include firm action against speculative trading and other activities. The moves come as policymakers across Asia step up efforts to support their currencies amid rising energy costs and a stronger dollar stemming from the Iran war.