South Korea’s stock market plunges as AI-driven boom fades
South Korea's stock market has declined sharply over two consecutive sessions, losing approximately $2.18 trillion in value as investor interest in chipmakers and AI-related stocks has diminished. The KOSPI index dropped 6 percent on Wednesday following an 11 percent decline on Tuesday, erasing nearly 40 percent of gains from a month prior. The government is reviewing market stabilization measures, including new regulations on leveraged exchange-traded funds.
South Korean equities have experienced significant losses across two trading days, with the Seoul market shedding roughly $2.18 trillion in capitalization. The decline represents the steepest monthly performance for the market on record, driven primarily by reduced investor appetite for semiconductor stocks that had previously benefited from artificial intelligence-related demand.
The KOSPI benchmark index fell 6 percent on Wednesday, following a near-11 percent drop the previous day. The cumulative decline has eliminated approximately 40 percent of the index's value from its peak, achieved just over a month ago. Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, noted that the most leveraged positions in the market are experiencing the heaviest selling pressure, making it difficult to predict when the selloff will stabilize.
Under pressure from lawmakers, South Korean Finance Minister Koo Yun-cheol acknowledged that single-stock leveraged exchange-traded funds had not undergone sufficient review before introduction. The government is now examining stabilization options, with particular focus on regulating these products, which analysts have identified as contributors to elevated leveraged trading volumes in Seoul.
Government and financial regulatory officials convened late Wednesday to address the market crisis, their second meeting in two weeks. The Ministry of Finance announced plans to immediately implement additional restrictions on single-stock leveraged products, including caps on individual investor exposure at up to 20 percent of total investment amounts, increased trading costs to discourage excessive activity, and mandatory simulated trading requirements. Officials are also preparing legal frameworks for emergency market-stabilization interventions.
Jon Withaar, senior portfolio manager at Pictet Asset Management in Singapore, observed signs of panic and forced liquidations across Asian technology stocks, with heavily out-of-favor Japanese names such as Nintendo and Sony rallying sharply as positions were unwound. Despite the recent decline, the KOSPI remains up 41.5 percent year-to-date in U.S. dollar terms, maintaining its position as the best-performing major market globally this year.
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