South Korea: Kospi Plunges as AI-Linked Stocks Face Sell-Off

Synopsis

South Korea's Kospi plummeted by over 8 per cent in Friday's trading session, which was halted before it recovered some ground. The drop came after Wall Street's biggest drop since April 2025 due to worries about investing in AI and valuations. Other major Asian indexes, such as Taiwan's Taiex and Japan's Nikkei, fell as much as 3 percent. The figures below are intraday, as the reports disagree on where the Kospi closed. The analysts said the move was "broad risk aversion.

The Kospi fell over 8 per cent during the trading period, causing a circuit breaker, but bounced back later to close 4.14 per cent down. Another report quoted the intraday low as 8.8 per cent. A third experienced a fall in the index of >6 per cent at another time.

What triggered it

The divestment came after Wall Street's worst trading day since April 2025 amid concerns about AI-related spending and more stringent regulations following the US midterm elections. A headline on one outlet noted the Kospi tumbling below 5,000 after the election.

South Korea is highly vulnerable to the AI value chain, with its chipmakers held in a large position in the index, and a negative sentiment towards tech spending can have a significant impact on the index's performance.

A regional pattern

This drop was not solely due to the Seoul metropolitan area. Taiwan's Taiex fell more than 8 per cent intraday and is now 3.2 per cent lower while Japan's Nikkei had dipped 5.3 per cent.

Not all markets followed. Foreign inflows and crude prices helped improve the benchmarks of India, a distinction which is discussed separately in this series.

Analyst view

The actions were “confirming the magnitude of the risk-off sentiment in global equities,” said Ponmudi R, the chief executive of Enrich Money.

This came as a shock earlier this year, too. The Kospi closed 8.3 per cent lower and the Nikkei ended 3.9 per cent down on June 8, with losses among the groups of shares related to artificial intelligence in the wake of gains in the previous trading session. But that the index is now down by an equivalent amount twice in five months suggests that there has been increased volatility around valuations.

Final Outlook

Circuit breakers do not affect the actual sell-off: they only pause trading so that investors can re-evaluate. Next up is to see if technology earnings and spending guidance return confidence or further raise the concerns surrounding capital expenditures for AI.