South Korea’s benchmark Kospi index plunged as much as 10% during Tuesday, July 28 trade. Investors rushed to sell chip stocks amid growing worries over Chinese competition and fears that the huge rise in AI-related chip spending may be losing steam.
The sharp fall triggered both a temporary trading curb and a full circuit breaker, making it one of the biggest one-day selloffs in the market this year. The selling also spread across other Asian markets, with chip stocks in Japan and China coming under heavy pressure.
The scale of the fall led to comparisons with a “black Tuesday”-style market session and attracted attention far beyond South Korea.
Nvidia worries add to pressure on chip stocks
One of the biggest reasons behind Tuesday’s selloff was growing concern about the high valuations of AI-related chip companies. US semiconductor stocks had already suffered a broad selloff on Monday. The VanEck Semiconductor ETF fell more than 2%, while AMD and Teradyne were among the biggest losers.
The selling came as investors became more cautious about whether the huge amount of money being spent on AI infrastructure and technology can continue at the same pace.
The concerns have grown following Nvidia‘s recent decline, leading to debate that some AI-linked chip stocks may have become too expensive after their strong gains.
SK Hynix and Samsung take a major hit
South Korea’s biggest memory-chip companies were among the worst hit in the selloff. SK Hynix fell as much as 12.6% during the day, at one point dropping below its own IPO price. Samsung Electronics also lost as much as 10.5%.
The selling was not limited to chip companies. Hyundai fell around 8.2%, while LG dropped about 5.1%.
The pressure also spread to other Asian markets. Japan’s Nikkei 225 fell as much as 4.4%, although it was later reported to be down around 3.9% near the close. The broader Topix index fell about 2.5%.
Japanese companies linked to the memory-chip and chip equipment supply chain also saw heavy losses. Kioxia, Tokyo Electron and Advantest fell between about 8% and 16.5%.
In China, the CSI 300 index was down around 2.5%.
US stock futures, however, were only slightly lower. S&P 500 futures were down about 0.2%. Traders noted that the relatively small fall in US futures was unusual given the scale of the selloff across Asian markets.
China emerges as a bigger threat
Another major concern for investors is China’s growing chip industry.
The successful IPO of ChangXin Memory Technologies, or CXMT, China’s biggest memory-chip maker, has raised fears that the company could use the fresh money to expand faster and narrow the gap with South Korea’s Samsung Electronics and SK Hynix.
Investors are also paying attention to reports that China has developed its own deep ultraviolet lithography equipment.
Program trading may have made the fall worse
The rapid fall also appears to have been made worse by automated trading and futures-linked selling.
The triggering of both the sidecar and the circuit breaker suggests that algorithm-driven and futures-based trades may have played a significant role in the decline.
Kospi opens sharply lower
The Kospi opened at 6,400.27, down 355.48 points, or 5.26%, from Monday’s close. The heavy selling immediately triggered a sell-side “sidecar” at 9:06 am local time. A sidecar is a temporary measure that stops program sell orders for five minutes to help calm the market.
It was the 22nd time this year that the Kospi had triggered the measure. But the selling did not slow down after the brief pause. By mid-morning, the index had fallen about 7.2% to 7.4%, trading around 6,266 to 6,267. Reuters described the move as a deepening “global chipmaker selloff.”
The decline later crossed 8%, pushing the Kospi below 6,300 for the first time in more than three months.
That triggered a full circuit breaker at around 10:13 am local time, stopping all trading for 20 minutes. It was the eighth circuit breaker triggered on the Kospi this year and the 14th in the market’s history.
The smaller-cap Kosdaq also saw a similar sidecar trigger as its index fell about 6%. Even after trading resumed, investors continued to sell. By late morning, the Kospi had fallen about 10%,
SK Hynix earnings come at a sensitive time
he timing of the selloff has also made investors more nervous.
SK Hynix is set to announce its quarterly results on July 29, just a day after the sharp market fall. It will be the company’s first earnings report since its record Nasdaq debut. Samsung Electronics is also due to report its results, putting the focus firmly on the outlook for the global chip industry.
Investors will be looking closely at what both companies say about demand for AI chips, chip prices and future growth.