KOSPI Plunges 8.1% as AI Spending Fears and China's Rising Tech Threat Hammer Chipmakers

KOSPI Plunges 8.1% as AI Spending Fears and China's Rising Tech Threat Hammer Chipmakers​

The South Korean stock market saw a sharp downturn on Tuesday, with the benchmark Kospi plunging 551 points or 8.1% to close at 6,2505. The steep decline was driven by heightened concerns surrounding the future profitability of massive AI spending and increased competition from China in the technology sector.

The volatility led to sidecar trading curbs being imposed on both the Kospi and the junior Kosdaq index, temporarily halting programme trading as investors grappled with declining sentiment across the semiconductor industry.

Semiconductor Sell-Off Amplifies Market Pressure​

The pressure extended well beyond memory chipmakers. SK Hynix experienced a significant drop of 11% after its American depositary receipts (ADRs) in New York fell to a record low, dipping below their initial US offering price. Samsung Electronics also suffered, declining by 9.15%.

Since both SK Hynix and Samsung Electronics constitute over half of the KOSPI's weighting, the outcome of the chip sell-off dramatically magnified its impact on the broader South Korean market. Chip stocks globally remained under duress, mirroring the extended decline seen in the Philadelphia Semiconductor Index for a third consecutive session.

AI Spending Concerns Fuel Investor Doubt​

New anxieties regarding the necessary scale of artificial intelligence (AI) expenditure added substantially to the pressure faced by semiconductor companies. The core concern for investors is whether the billions being poured into AI infrastructure will translate into sufficient returns to justify such massive commitments.

This uncertainty surfaced despite a pause in fighting between the US and Iran, which had been initially viewed as a potential catalyst for global stability. Technology stocks globally experienced heavy losses amid these persistent doubts about future profitability.

China’s Accelerated Tech Capacity Threat​

Developments originating from the Chinese market heightened investor caution regarding the long-term competitive landscape. ChangXin Memory Technologies (CXMT) made a commanding market debut, soaring by nearly 500%.

Adding to market concern is emerging reports of a state-backed Chinese entity beginning production of immersion DUV lithography equipment. As noted by Kim Seok-hwan, an analyst at Mirae Asset Securities, the focus is not on CXMT's immediate earnings but on its potential for rapid capacity expansion and technology development capabilities that could rival Korean firms post-IPO.

Global Market Volatility Amid US Fed Uncertainty​

The KOSPI drop mirrored wider declines across Asia. The broader MSCI Asia Pacific Index fell 2.92%, with technology stocks bearing the brunt of the losses. Meanwhile, Japan's Nikkei declined 3.86% and Topix slipped 2.77%.

Investors are facing a critical period marked by crucial policy announcements from major central banks including the US Federal Reserve (Fed), Bank of Japan, and the Bank of England, alongside key technology earnings reports. The Fed is set to begin its two-day policy meeting on Tuesday.

Future Rate Hike Expectations Intensify​

While the Fed is expected to leave interest rates unchanged during the upcoming meeting in the US, market expectations are shifting rapidly for future action. CME FedWatch data indicates that the probability of a rate hike of at least 25 basis points at the central bank's September meeting now stands at 81%, up from 16% just one week prior.

In related global movements, US stock futures saw mixed signals in early Asian trading. S&P 500 futures were slightly negative (down 0.3%), while Nasdaq 100 futures dropped 0.2%. The Dow futures managed a modest gain of 24 points, or 0.05%. However, the technology-heavy Nasdaq Composite slipped 0.2% amid the semiconductor sell-off in Wall Street trading.