KOSPI Enters Bear Market: South Korea’s AI Stock Boom Cracks on July 9

South Korea’s KOSPI index fell into bear market territory on Wednesday, dropping more than 20% from its June 22 record high of 9,114.55 to 7,246.79. The selloff was driven by sharp losses in Samsung Electronics and SK Hynix, which together account for over half the index’s weighting. Investors are now questioning whether artificial intelligence spending can sustain the gains that powered a 73% year-to-date rally.

Why chipmakers sparked the reversal

Samsung Electronics fell 6.3% and SK Hynix lost 5.7% on Wednesday as the Philadelphia Semiconductor Index dropped 4.7% overnight. The selloff came despite Samsung reporting record operating profit, marking a classic “sell the news” event. Analysts point to growing concerns that U.S. technology firms may slow their AI infrastructure spending and that memory chip prices could peak. The speed of the reversal exposed extreme market concentration: chipmakers made up over 50% of the KOSPI’s weighting as of June.

A crowded trade unwinding fast

The KOSPI’s 20% decline from peak confirms bear market status, yet the index remains up roughly 70% this year. Manishi Raychaudhuri, CEO of Emmer Capital, said the drawdown was driven by heightened AI skepticism and extreme concentration. Jung In Yun, founder of Fibonacci Asset Management Global, described the correction as a “healthy reset” rather than a fundamental deterioration, noting that Korean equities had become one of the most crowded AI trades globally after the strong rally.

Broader market stress and geopolitical risk

The selloff was compounded by fresh U.S.-Iran tensions after President Trump declared the ceasefire “over” on Wednesday, sparking new attacks and retaliation. The KOSPI ended 0.5% higher on Thursday following a volatile session, signalling some stabilisation. South Korea’s Finance Minister Koo Yun-cheol pledged to monitor risk factors including single-stock leveraged ETFs tied to chipmakers, which have amplified swings. The index triggered circuit breakers six times this year, with Wednesday marking the 12th halt in history.

What investors should watch next

SK Hynix’s U.S. ADR listing on Friday was oversubscribed more than seven times, suggesting underlying demand for the sector remains. However, earnings season will be critical: companies must show that margins hold, guidance stays firm, and AI-driven profit growth has enough breadth to justify valuations. With the KOSPI still holding a 73% year-to-date gain despite the 20% pullback, the question for traders is whether this is a pause in the AI rally or the start of a deeper correction.

Final Thoughts

The KOSPI’s bear market entry reflects profit-taking in a crowded AI trade rather than broken fundamentals, but concentration risk and geopolitical uncertainty now pose real downside. Investors should wait for earnings clarity before re-entering the sector.

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The content shared by Meyka AI PTY LTD is solely for research and informational purposes.  Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.