South Korea's AI-Fueled Stock Surge Hits a Wall as Global Risk Aversion Spreads

SEOUL/HONG KONG (Financial Wire) -- South Korea's stock market, a global standout for over a year, faced a severe reality check on Monday as a wave of risk aversion swept through Asian bourses. The benchmark Kospi index plummeted 5.3%, its steepest single-day fall since early April, in a selloff that triggered automatic halts in program trading and wiped billions from market capitalization.

The downturn, which saw futures slide precipitously, was led by the very engines of Korea's historic rally: semiconductor titans Samsung Electronics and SK Hynix. Both stocks cratered more than 6%, buckling under pressure from a global retreat from technology shares. The Korean won also weakened sharply, falling 1.6% against the dollar.

Analysts point to a confluence of factors behind the plunge. Globally, investor unease was stoked by renewed uncertainty over U.S. interest rate policy and comments from Nvidia CEO Jensen Huang that appeared to temper the euphoria around massive AI infrastructure spending. Regionally, a broad-based tech slump pulled the MSCI Asia Pacific Index down over 2%.

"The market's mood shifted from unbridled optimism to sheer panic in a matter of hours," said Han Jiyoung, an analyst at Kiwoom Securities. "While the trigger was external sentiment, the velocity of the drop inevitably sparked panic selling. However, the core fundamentals for Korea's chip sector—strong earnings and manageable valuations—haven't vanished overnight."

Monday's rout marks a stark reversal for a market that had become a darling for global investors. Since last year, voracious demand for high-bandwidth memory chips, critical for AI systems, propelled South Korean equities to world-beating gains. Just last week, the total market capitalization of Korean stocks surpassed Germany's, claiming the spot as the world's tenth-largest. The Kospi itself had recently breached the symbolic 5,000-point threshold, a goal set by the government, before retreating below it on Monday.

Portfolio managers were divided on the implications. "Huang's remarks acted as a catalyst for profit-taking in what had become an extremely crowded trade," noted Gary Tan, a portfolio manager at Allspring Global Investments in Singapore. "We're seeing a healthy unwinding of speculative positions, not a structural breakdown."

Despite the dramatic drop, the Kospi remains up more than 17% year-to-date. Some veteran investors viewed the plunge as a buying opportunity. "This is the kind of sentiment-driven washout I've been waiting for," said Jung In Yun, CEO of Fibonacci Asset Management Global. "The real-world demand story for AI memory is unchanged. No major orders have been canceled, and capital expenditure plans remain firm."

The selloff saw net selling from both domestic and foreign institutions, while retail investors stepped in as buyers. Equity strategist Cameron Chui at JPMorgan Private Bank suggested technical factors were at play: "After such a powerful run, it's natural for traders to lock in profits, creating short-term selling pressure on the memory giants and the index."

Market Voices: Reactions from the Trading Floor

David Park, Hedge Fund Manager, Seoul: "This was overdue. Valuations had sprinted ahead of reality. It's a necessary correction that shakes out weak hands and resets expectations for a more sustainable climb. The AI thesis is intact, but the path won't be a straight line up."

Sarah Chen, Retail Investor, Busan: "It's terrifying to see a year's gains erode in a day. Everyone was talking about AI making us rich, and now this. It makes you question if it was all just a bubble. I'm holding my Samsung shares, but my confidence is shaken."

Michael Reynolds, Institutional Sales, Hong Kong: "The knee-jerk reaction is overblown. Korea's market structure, dominated by a few cyclicals, amplifies moves. This isn't 2008; it's a liquidity-driven adjustment in a fundamentally sound market. We're advising clients to use the weakness to add quality names."

Ji-hoon Kim, Economics Professor, Seoul National University: "This exposes our market's deep vulnerability to external shocks and its over-reliance on a single sector. The government's celebration of the 5,000-point milestone was premature. We need a more diversified economic narrative beyond just being a hardware supplier to the AI boom."