South Korea’s stock market recently experienced a significant downturn, with the KOSPI index plummeting over 8% on June 23. It even hit a low of roughly 9.1% during the trading session, prompting a Level 1 circuit breaker that temporarily halted trading for 20 minutes.
This dramatic selloff was primarily driven by the poor performance of major tech companies. Samsung Electronics saw its shares drop more than 10%, while SK Hynix, which had recently surpassed Samsung as Korea's most valuable firm, fell over 12%.
#What Caused This Market Reaction?
The immediate trigger for this selloff traces back to Broadcom's recent earnings report, which, despite showing robust figures, slightly missed market expectations. Broadcom reported Q2 revenue from AI chips at $10.8 billion, a staggering 143% increase year-over-year. However, its overall revenue fell short of what analysts had anticipated, and it maintained its AI revenue forecast unchanged for 2027. In a market accustomed to rapid growth, these results were interpreted as disappointing.
The fallout was swift. The selloff began in US tech stocks and quickly spread to South Korea, with foreign investors offloading more than 4 trillion won (approximately $2.6 billion) worth of KOSPI shares during this drop. While some domestic retail investors attempted to stabilize the situation, the selling pressure was considerable.
#What Was the Context of This Selloff?
Leading up to this event, the KOSPI had been on a strong upward trend, surpassing previous record highs driven largely by increased demand for semiconductors linked to AI investments. SK Hynix exemplified this trend, being one of the main producers of high-bandwidth memory chips essential for AI data centers. The company’s value surge, alongside Samsung, reflected a booming appetite for AI hardware.
At the time of this downturn, margin debt across the Korean stock market had reached a record high of 38.5 trillion won, indicating heightened investor activity and risk.