The South Korean stock market has faced one of its worst crashes in recent years. Over two days, the Kospi index plummeted by 16%, triggering panic and disappointment among private investors. On Wednesday, shares continued to decline following disappointing financial results from SK Hynix Inc., raising concerns about the future of artificial intelligence development.
During the morning session, the Kospi index fell by 13%, leading to an automatic trading halt for the second consecutive day. Although the index partially recovered later, it closed the day down by 6%. Late in the evening, authorities pledged to implement additional measures to stabilize the market and restrict private investors’ access to leveraged exchange-traded funds after the crash erased billions of dollars in asset value.
Investor panic and the fall of SK Hynix shares
The wave of optimism that made Korean stocks the best performers in the world at the start of the year is rapidly dissipating. Investors are increasingly questioning the economic viability of large-scale investments in the artificial intelligence sector and expressing concerns about the technological advancements of Chinese competitors. In this context, private investors sold Kospi shares for a net total of 2 trillion won (1.4 billion dollars) on Wednesday, surpassing the outflow of funds from foreign investors.
“I have just been through hell,” said Kim Bom-jin, an individual investor from Seoul who holds shares in several Korean companies, including Samsung Electronics Co.. He noted that his friends, who previously discussed the stock market daily, have gone unusually silent, as the drop in prices “left us speechless.” On Wednesday, social media was flooded with screenshots of brokerage apps showing significant losses. On the Threads platform, one user shared that a profit of over 600 million won (414,000 dollars) had turned into a cumulative loss of 700 million won within a few days. Another investor reported losing 40% of their investment after putting wedding savings into the market.
“People seem to be just fleeing,” observed Yoon Jun-won, a fund manager at DS Asset Management. “It is hard to understand the scale of this sell-off, especially among private investors. This appears to be more of an irrational sell-off than a response to fundamental factors.”
Shares of SK Hynix dropped by 20% during morning trading and have lost nearly 60% from their closing high in June. Investors were disappointed by the conference call following the financial report, during which the company provided few details about its capital return policy to shareholders and long-term contracts with clients. Meanwhile, the manufacturer announced plans to increase capital expenditures to at least 31 billion dollars after reporting a six-fold increase in quarterly profit. By the end of trading, the decline in shares had narrowed to 9.6%.
“SK Hynix is increasing capital expenditures to the range of 40 trillion won but reveals almost no information about the capital return policy to shareholders and pricing under long-term contracts. This has caused concern among investors,” said Josh Gilbert, a leading analyst for the Asia-Pacific region and the Middle East at Etoro Ltd.. He noted that due to the significant weight of SK Hynix and Samsung in the Kospi index, their simultaneous decline is placing substantial pressure on the entire market. The weak performance of chipmakers’ stocks also reflects fears that major technology companies, including Meta Platforms Inc., may invest in data centers beyond market demand. Investors are now awaiting the financial results of Samsung Electronics and other American technology companies.
Government measures and market reactions
The activation of a 20-minute automatic trading halt for the Kospi for the second consecutive day was unprecedented. Out of 15 instances of this mechanism being triggered since 2000, nine have occurred this year. The Kosdaq index, which includes shares of small and medium-sized companies, also faced trading halts twice in a row. Roy Lim, a stock sales trader at Samsung Securities, remarked that only during trading pauses can he briefly step away from his desk. He described the current correction of the Kospi as one of the most severe in recent years, even surpassing the tensions of the tariff war and the conflict in Iran.
Finance Minister Koo Yun-cheol convened an emergency meeting, after which the government announced new restrictions on leveraged exchange-traded funds. Among the measures are limits on their share in investment portfolios and an increase in transaction costs. Authorities also plan to establish a legal framework for the rapid implementation of emergency market stabilization measures. The Ministry of Finance reported that Seoul will ensure round-the-clock monitoring of the financial markets. At the start of trading in the U.S., the technology index Nasdaq-100 was nearly unchanged after five consecutive days of decline, while American depositary receipts of SK Hynix were trading down by approximately 0.9% as of 9:40 N
