Kospi's AI party over? South Korean benchmark tumbles 7%, sell-side sidecar activated

The AI-driven rally that turned South Korea into one of the world's hottest equity markets ran out of fuel on Tuesday. As of 9:50 am IST, the Korean benchmark tumbled over 7%, to trade at 7,478.61, down 572.72 points. The plunge comes as a sharp reversal for a stock that inched record highs this year, jumping beyond the 9,000 milestone just days earlier, riding the same wave that has now dragged it down.Investors rushed to lock in profits after Samsung Electronics unveiled stronger-than-expected quarterly earnings, triggering a broad sell-off in heavyweight technology stocks and forcing the Korea Exchange (KRX) to activate a sell-side sidecar to calm the market.

Programme trading on the benchmark KOSPI was suspended for five minutes at around 10.23 am after the index plunged sharply, according to Yonhap News Agency.On the tech front, Samsung Electronics slumped 7.4%, while SK Hynix fell 6.4% ahead of its planned US listing later this week. Reuters had earlier reported that the listing is expected to raise around US$28-29 billion, making it one of the world's largest share offerings.Beyond tech, Hyundai Motor declined 5.9%, while Hanwha Aerospace lost 4%.Hanwha Ocean plunged 23% after a South Korean consortium that includes the shipbuilder failed to secure Canada's multibillion-dollar submarine procurement project.Among the gainers, cosmetics maker Amorepacific rose 2.9%, while leading refiner SK Innovation gained 3.9%.The Korean won traded at 1,527.40 against the US dollar as of 11.20 am, strengthening 2.6 won from the previous session.Upbeat earnings, but investors continue selling spreeThe sharp decline followed Samsung Electronics' release of its preliminary second-quarter earnings estimate.The company projected operating profit of 89.4 trillion won ($58.4 billion) for the April-June period, beating the average market forecast by 6.2%, according to Yonhap Infomax.The estimate includes provisions for employee bonuses.

Excluding those provisions, Samsung's quarterly operating profit is estimated to have reached around 100 trillion won.Despite the stronger-than-expected earnings, investors opted to cash in after months of gains fuelled by optimism around artificial intelligence, dragging the broader technology sector lower.Foreign investors were the biggest sellers, offloading a net 1.74 trillion won worth of shares.

Institutional investors also sold a net 97.3 billion won ($64 million), while individual investors emerged as net buyers with purchases worth 1.81 trillion won.Volatility follows Monday's reversalTuesday's sharp decline came a day after South Korean equities surrendered early gains as investors turned increasingly cautious over elevated valuations in artificial intelligence-linked stocks.

Reuters had reported that the KOSPI, after climbing more than 2% early on Monday, reversed course to fall over 2% as investors reassessed the rapid rally in AI-related shares. The decline also weighed down the broader MSCI Emerging Markets Asia Index, with South Korea accounting for more than a quarter of the benchmark.While geopolitical concerns linked to the Middle East have eased somewhat, investors have begun questioning whether enthusiasm surrounding artificial intelligence can continue to justify lofty equity valuations.The renewed caution comes after AI-related stocks drove global market gains over the past year, making investors increasingly sensitive to valuation risks and profit-taking.SK Hynix listing, Samsung earnings remain in focusInvestor attention has remained firmly on South Korea's semiconductor industry.Reuters had reported that SK Hynix is preparing for a US listing expected to raise around US$28 billion, underlining continued investor interest in AI infrastructure and advanced memory chips.

The company's shares had already fallen 4% during Monday's session.Markets are also entering the corporate earnings season, with technology companies expected to continue benefiting from robust AI-driven demand.Ahead of Tuesday's preliminary earnings release, Reuters had reported that Samsung Electronics was expected to post an approximately 18-fold increase in second-quarter operating profit compared with the same period last year, driven by strong demand for semiconductors used in AI applications.AI boom or alarm bells?The latest sell-off has renewed focus on the growing concentration of South Korea's equity market.

The global AI boom has propelled Samsung Electronics and SK Hynix to record highs this year, with the two companies now accounting for around 60% of the KOSPI, up from about 40% two years ago.The surge has helped the benchmark nearly double this year and made South Korea the world's best-performing equity market.

At the same time, it has exposed structural vulnerabilities as market performance has become increasingly dependent on just two companies.Over the previous month, regulators had twice intervened by pausing trading to calm markets after sharp declines. Officials have also expressed regret over allowing new investment products tied to AI demand that have contributed to higher volatility, while plans to introduce options on large-cap stocks, including SK Hynix, have been postponed.Analysts cited by the Wall Street have warned that individual investors borrowing money to buy Samsung and SK Hynix shares could face margin calls if prices decline sharply.

A growing concentration of risk in the two chipmakers could also encourage institutional investors to reduce exposure, amplifying any downturn.According to Julius Baer, daily moves exceeding 5% in the MSCI Korea index have occurred on one-fifth of trading days this year, compared with just 0.8% of trading days in 2025.“The latest market action provides an important reminder about concentration risk,” said Mathieu Racheter, head of equity research at the investment bank.

“Periods of elevated volatility should be expected when investor positioning becomes crowded.”Get the latest business news and top stories. Download the TOI App.Ready to Make a Smarter Property Decision? Build Your Legacy with TOI Homes.