South Korean stocks experienced a sharp decline, with the benchmark KOSPI index falling by 5.72% to settle at 6,690.62. This drop was primarily driven by major memory chip manufacturers Samsung Electronics Co. and SK Hynix Inc., whose shares tumbled between 6% and 10%. SK Hynix fell 9.2% and Samsung Electronics dropped 7.5%, both reaching their lowest levels in weeks. The broader weakness in AI-related shares globally, following a weak session on Wall Street, and concerns over the sustainability of AI-driven chip rallies contributed to the selloff.
The decline in South Korean chipmakers was exacerbated by several factors, including reports that Meta Platforms Inc. is exploring a cloud infrastructure business that could lead to more disciplined hyperscale AI spending. Additionally, Apple Inc.'s evaluation of memory chips from Chinese suppliers raised concerns for South Korea's dominant memory producers. The broader selloff extended to other Asian chip-related companies, with Kioxia Holdings Corp. down 13.3% and Ibiden Co. Ltd. losing 7.9%.
Investor caution stemmed from the significant rally in AI-related stocks earlier in the year, which had pushed valuations to high levels. Analysts, such as Stephen Innes of SPI Asset Management, noted that the Philadelphia Semiconductor Index had risen approximately 83% this year, indicating stretched valuations. While demand for AI infrastructure is still strong, investors are questioning how much of this demand has already been factored into share prices, leading to a correction even in the face of positive outlooks.
Adding to the pressure, Washington initially announced a 12.5% tariff targeting South Korea, which heavily impacted export-dependent industries. Although Seoul later confirmed a 15% cap arrangement, the initial tariff threat contributed to the market's volatility. The combined impact of AI investment worries, potential shifts in AI spending, tariff concerns, and stretched valuations led to a broad-based selloff across the technology sector in South Korea and other Asian markets like Tokyo and Taipei.
