KOSPI plunges 8% as chip rout spreads across Asia-Pacific

South Korea's benchmark index tumbled below 7,000 points as a selloff in US semiconductor stocks triggered profit-taking in the region's most AI-exposed market.

The KOSPI plunged nearly 8% to below 7,000 points Wednesday as a pullback in US chip stocks fueled concerns that artificial-intelligence enthusiasm had outpaced fundamentals, hammering Asia's most semiconductor-heavy market.

"The decline reflects profit-taking in names that had more than doubled over the past year," Goldman Sachs Research's Asia Pacific regional equity strategists said in a note, maintaining a 12-month KOSPI target of 12,000 and projecting 320% earnings growth for the market.

Samsung Electronics slid for a second week despite reporting record profits in its July 7 preliminary earnings, while SK Hynix tumbled more than 10% in Seoul as investors locked in gains following its Nasdaq debut. Together, the two heavyweights had contributed nearly 90% of the KOSPI's gains earlier this year. The broader Asia-Pacific region also declined, tracking Wall Street's overnight session where US chip stocks pulled back.

The selloff threatens to unwind one of the world's best-performing equity markets. The KOSPI had more than doubled over the past year, surging past 8,000 points on the back of an AI-driven memory chip supercycle and the government's "Value-up Program" targeting corporate governance reforms. With Goldman Sachs still projecting a 12,000 target, the question is whether this is a correction within a bull market or the start of a deeper rotation out of AI-exposed names.

The decline was compounded by two additional catalysts. Escalating geopolitical tensions in the Middle East pushed oil prices higher, driving a flight to safety among global investors. Separately, reports that the US Commerce Department is pushing South Korean chipmakers to build more fabrication plants domestically sparked fears of increased corporate costs and supply-chain restructuring.

Can Margins Hold Above Current Levels?

Goldman Sachs strategists expect memory manufacturers' shift toward three- to five-year long-term supply agreements to sustain elevated profitability for longer than the equity market currently anticipates. The high operating leverage carried by domestic memory producers means that impending price stability should quickly translate into outsized bottom-line growth, potentially sparking a sharp recovery for the KOSPI.

For investors, the pullback presents a test of conviction. If the semiconductor cycle is merely pausing rather than reversing, the KOSPI's 8% decline could be a buying opportunity. If AI enthusiasm is genuinely fading, the index could face further downside given its extreme concentration in just two stocks.

This article is for informational purposes only and does not constitute investment advice.