South Korea's benchmark stock index, the KOSPI, experienced a sharp decline of more than 8% on Monday as the once-blistering rally in artificial intelligence (AI) stocks lost momentum. Investor sentiment turned cautious following a strong US jobs report and escalating conflict in West Asia, which together dampened risk appetite across global markets.
Intraday Drop and Key Losers
The KOSPI fell as much as 9% during intraday trading, driven by heavy selling in semiconductor giants. Samsung Electronics plunged 10.2%, while SK Hynix dropped 7.7%. These two chipmakers, which together account for more than half of the index's weight, have been among the biggest beneficiaries of the AI boom but are now facing a significant pullback.
The selloff in tech shares extended a downturn that began after Broadcom's disappointing full-year guidance last week. AI chip stocks had previously hit record highs as investors bet on widespread adoption of artificial intelligence, despite massive capital expenditure by AI companies to expand compute capacity.
Impact of US Jobs Report
On Friday, the Nasdaq closed more than 4% lower after a stronger-than-expected US jobs report raised expectations that the Federal Reserve would maintain higher interest rates for longer. This reduced the likelihood of near-term rate cuts, weighing on growth-oriented tech stocks.
Broader Asian Market Weakness
The downturn was not limited to South Korea. Major Asian tech stocks also suffered losses on Monday. Taiwan Semiconductor Manufacturing Co (TSMC) fell 2.96%, while Hon Hai Precision (Foxconn) dropped 5.27%. In Japan, SoftBank plunged 6.1%, and Tokyo Electron and Advantest declined 7.45% and 5.72%, respectively.
Broader Asian indices were under pressure as renewed conflict in West Asia triggered fears of a prolonged closure of the critical Strait of Hormuz. Energy prices, already elevated, have pushed US consumer sentiment to record lows. A protracted conflict could reignite inflation fears and dash hopes of a rate cut, especially as the new Federal Reserve chief prepares for his first policy announcement.
Market Outlook
The recent correction in AI-related stocks suggests that investors are adopting a wait-and-watch approach after months of exuberance. While Samsung and SK Hynix remain favored bets for long-term AI growth, near-term volatility is expected to persist amid macroeconomic uncertainties and geopolitical risks.
