South Korea's KOSPI crashes 13%, triggers trading halt as AI stocks sink

South Korea's stock market witnessed one of its worst selloffs in years on Wednesday, with the benchmark KOSPI plunging as much as 12.6% and triggering a trading suspension, as investors rushed to exit artificial intelligence (AI)-linked stocks amid growing concerns over whether massive spending on the technology will deliver the returns markets had expected.The sharp decline came a day after the index had already tumbled nearly 11%, taking its two-day fall to more than 20% and leaving it over 40% below the record high it touched just over a month ago.The selloff has been largely driven by heavy losses in semiconductor giants SK Hynix and Samsung Electronics, the biggest beneficiaries of the global AI boom.WHY ARE AI STOCKS FALLING?For much of this year, investors poured money into companies making AI chips and memory products, betting that the surge in spending on artificial intelligence would translate into years of strong earnings. However, that optimism has started to fade.Even though SK Hynix reported a six-fold jump in quarterly earnings, the results failed to impress investors who had expected even stronger growth. Its shares fell around 16%, while Samsung Electronics dropped nearly 10%, dragging the broader KOSPI lower. Together, the two companies account for more than half of the KOSPI's market capitalisation, meaning sharp declines in their shares have an outsized impact on the benchmark index."The hopes of the market rebounding today after a 10% plunge yesterday faded, triggering panic selling," Han Ji-young, an analyst at Kiwoom Securities, told Reuters.Analysts said investors are increasingly questioning whether the hundreds of billions of dollars being invested globally in AI infrastructure will generate sufficient returns in the near future.LEVERAGE IS MAKING THE SELLOFF WORSEThe decline has been amplified by leveraged retail investors.During the AI rally, many individual investors borrowed money to increase their exposure to AI-linked stocks. As share prices started falling, brokers were forced to liquidate those leveraged positions, accelerating the selloff."It is certainly a very crowded trade which is being unwound," Frank Benzimra, Head of Asia Equity Strategy at Societe Generale told Reuters."If you look at what is falling in the market, it has been the stocks in which you have the most leverage."The absence of buyers also worsened the decline, with trading volumes remaining relatively light despite the steep fall in prices.GOVERNMENT LOOKS AT STABILISATION MEASURESThe sharp market decline prompted South Korean authorities to consider measures to calm volatility.Finance Minister Koo Yun-cheol said the government is reviewing market stabilisation measures, including changes to regulations governing single-stock leveraged exchange-traded funds (ETFs), which many analysts believe have amplified recent market swings.Meanwhile, Taiwan's TSMC, the world's largest contract chipmaker, also came under pressure, with its shares falling about 3%, reflecting broader weakness across AI-related semiconductor stocks.WHY THIS IS HELPING INDIAN IT STOCKS?Interestingly, the global shift away from expensive AI infrastructure plays has emerged as a positive for Indian IT companies.For the past two years, Indian IT firms had underperformed many global technology stocks because they lacked a direct AI infrastructure story. Unlike companies such as SK Hynix, Samsung, Nvidia or TSMC, Indian IT firms are not spending billions of dollars building AI chips or large-scale data centre infrastructure.That was earlier seen as a disadvantage.Now, as investors reassess richly valued AI hardware companies and look for businesses with stable earnings, reasonable valuations and lower capital expenditure requirements, Indian IT stocks have started attracting renewed interest.Expectations that the US Federal Reserve will keep interest rates steady have also supported sentiment towards the sector, as a stable US economy is seen as positive for technology spending by global clients.In effect, what was once considered Indian IT's biggest weakness—its lack of a pure AI play—is now turning into one of its strengths as investors rotate away from high-risk AI infrastructure stocks and towards companies with more predictable earnings.(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- EndsPublished On: Jul 29, 2026 12:21 IST