KOSPI Drops 3.5% as Tech and AI Sell-Off Hits Chips

South Korea's KOSPI Takes Another Hit on Tuesday

South Korea's main stock market index, the KOSPI, experienced another rough morning on Tuesday. The index opened 3.5% lower as an ongoing sell-off in artificial intelligence and semiconductor shares dragged down the broader market.

This sudden pullback has drastically shrunk the index's overall performance for 2026. Back in June, the KOSPI reached a record peak with an impressive 116% gain for the year. Following recent declines, that annual gain has narrowed down to roughly 31%.

Right now, the index sits about 39% below its June peak. The decline really picked up momentum during the summer when the index lost 22% in July alone. By October 16, the market erased an additional 17% of its value.

Why Chipmakers and AI Concerns Are Dragging the Market Down

To understand why the KOSPI is feeling so much pressure, it helps to look at its biggest components. Memory chip giants Samsung Electronics and SK Hynix together accounted for a massive 44% of the entire index back in May.

Because these two companies carry so much weight, drops in their share prices heavily impact the whole index. Between October 1 and October 16, share prices for Samsung Electronics fell by 19.74%, while SK Hynix dropped 28.38%.

Growing credit worries around big AI infrastructure spending also made investors cautious. Sentiment weakened after bond prices dropped for cloud provider CoreWeave, leading foreign investors to turn into net sellers.

This wave of foreign selling pushed the KOSPI into a seven-session losing streak through October 15. On that same day, stronger-than-expected inflation data from the US triggered a sharp 7.57% single-day drop, bringing the index down to 5,554.22.

Did Borrowed Money Make the Market Drop Worse?

Market analysts point to heavily leveraged trading as another factor that accelerated the downturn. Margin loans, which allow traders to buy shares using borrowed money, reached a peak of 38.63 trillion won on June 24.

When share prices fall rapidly, brokers issue margin calls. If investors cannot provide additional cash to back their positions, brokers execute forced liquidations by selling off those shares automatically.

Forced liquidations topped 50 billion won for four consecutive trading sessions up to October 16, creating additional downward pressure on stock prices.

Kospi….It’s been rough lately. Remember a lot of the traders there are on leverage too. Exacerbating the situation… — Heisenberg (@Mr_Derivatives)

What Could Happen Next for the KOSPI?

Before Tuesday's drop, institutional buyers tried to stabilize the market. On Monday, after opening 3.17% lower, institutional buying helped lift the index by 1.76% to close at 5,768.01.

Because the KOSPI relies so heavily on two main semiconductor stocks, its future direction will depend on specific market conditions. If corporate AI spending stays strong and foreign selling eases, chip stocks may find support and bounce back.

On the other hand, if global tech spending slows down or higher inflation pressures persist, the market could experience further downside risk and ongoing price volatility.

Past performance of financial markets and assets is not an indicator of future results.