South Korea's KOSPI index tumbles 11% in five sessions: What's driving the sharp correction?

South Korea's benchmark KOSPI index plunged on Tuesday as renewed selling in technology stocks weighed on investor sentiment. KOSPI dropped as much as 8.22 per cent to touch an intraday low of 7,389.22, pressured by sharp declines in heavyweight chipmakers Samsung Electronics and SK Hynix. The index later pared some losses to settle 4.91 per cent lower at 7,656.31. At this level, it has fallen 10.89 per cent over the past five trading sessions.

The sharp correction was led by heavyweight semiconductor stocks, reflecting growing concerns that the rally in AI-related companies may have outpaced underlying fundamentals.

Samsung Electronics, whose shares have more than doubled this year, fell 6.92 per cent despite reporting a 19-fold rise in profit. SK Hynix declined 6.06 per cent after launching the marketing process for its proposed US listing.

The Seoul-based index has become increasingly concentrated in the semiconductor sector, with Samsung Electronics and SK Hynix together accounting for more than half of the index's total market capitalisation.

AI-linked stocks have remained volatile amid concerns that valuations have become stretched.

The weakness was not confined to South Korea. Hong Kong's Hang Seng index slipped 0.51 per cent to 23,496.89, China's Shanghai Composite Index declined 1.26 per cent to 3,990.24, Taiwan's Taiex fell 2.31 per cent to 45,479.11, while Japan's Nikkei 225 dropped 2.04 per cent to 68,315.

Investor caution had already been building following recent remarks from South Korea's market regulator. Last month, Lee Chan-jin, head of the country's market watchdog, said authorities may have moved too quickly in approving leveraged funds linked to some of the nation's leading chip stocks.

Regulators have also warned retail investors against excessive leverage in the stock market.

Despite the recent selloff, the KOSPI remains up 77.66 per cent on a year-to-date (YTD) basis.

Meanwhile, V K Vijayakumar, Chief Investment Strategist at Geojit Investments, earlier highlighted that the weakening of the chip trade globally, and the significant correction in Kospi, in particular, could persuade FPIs to turn buyers in India.