Kospi sinks over 10 percent as China chip fears hit
Heavy foreign selling drove Korea’s benchmark index to a three-month low as China’s chip advances rattled semiconductor shares and broader market sentiment.
An electronic display board shows the Kospi and Kosdaq at the Korea Exchange in Yeouido, western Seoul, on Tuesday. The Kospi plunged 10.84 percent to close at 6,023.66 on the day, the largest loss since a 12.06 percent decline on March 4.NEWS1
The Kospi crashed more than 10 percent on Tuesday as heavy foreign selling drove the benchmark index to a three-month low near the 6,000 mark, as China’s latest chip advances fueled fears of intensifying competition in the global semiconductor industry.
The Kospi tumbled 10.84 percent to close at 6,023.66, its lowest level since April 14, when the index finished at 5,967.75. Earlier in the session, the benchmark index tumbled as much as 11.29 percent to 5,992.91. A sidecar and a marketwide circuit breaker — tools designed to curb excessive volatility —were both triggered. Tuesday's decline was the steepest since the Kospi fell 12.06 percent on March 4, following the outbreak of the war in the Middle East.
Foreign investors off-loaded a net 4.97 trillion won ($3.4 billion) worth of local shares, while retail investors bought a net 4.33 trillion won and institutions purchased a net 630.1 billion won.
The Kospi’s sharp decline followed an overnight sell-off in technology stocks on Wall Street, fueled by concerns over intensifying competition from Chinese chip companies after U.S. news outlet The Information reported on Monday that an unnamed Shanghai-based company backed by the government has begun manufacturing domestically developed deep ultraviolet lithography chipmaking tools, a key piece of tech that Dutch supplier ASML has long dominated. The machines are expected to be delivered this year to leading Chinese chipmakers.
The blockbuster initial public offering (IPO) of China's leading memory chipmaker, CXMT, whose shares surged nearly 470 percent on their market debut Monday, also fueled concerns that the fresh capital raised could accelerate the company's efforts to narrow the technology gap with established global rivals.
The sell-off reflected a convergence of fears surrounding AI: China’s accelerating technological advances, the prospect of a supply glut and lingering doubts over whether the AI spending boom will ultimately translate into profits and cash flow, analysts say.
These risks themselves are hardly new, but those concerns came to a head as investors unwound heavily crowded positions in Korean chipmakers, a trade that had helped propel the Kospi to a record high of 9,114.55 on June 22.
"A new shock didn't bring the market down. It was familiar risks finally being priced in as crowded positioning met thin liquidity," said Kim Seok-hwan, an analyst at Mirae Asset Securities. "The key question now isn't whether the index will fall further, but whether the latest plunge marks the beginning of a deterioration in fundamentals or the final stage of an unwinding of excessive positioning."
Market bellwether Samsung Electronics shed 13.39 percent to 220,000 won while SK hynix decelerated 14.65 percent to 1.55 million won. SK Square, the parent company of SK hynix, nose-dived 15.6 percent to 925,000 won, and Hanmi Semiconductor, a leading chip equipment manufacturer, slid 12.22 percent to 179,500 won.
Stocks of other sectors also slumped, with Hyundai Motor tumbling 9.68 percent to 364,000 won and internet giant Naver falling 6.67 percent to 210,000 won.
As Korea’s stock market extends its losing streak, investors are shifting from the fear of missing out to the joy of missing out. Cash parked on the sidelines by retail investors — often viewed as the market’s dry powder — is accordingly dwindling. Investor deposits totaled 109.17 trillion won as of Monday, down more than 27 trillion won from the peak on June 23, according to data from the Korea Financial Investment Association.
Outstanding margin loans, another gauge of investors’ appetite for risk, have also declined. Outstanding margin loans fell to 32.74 trillion won as of Monday, down more than 5.8 trillion won from the peak at 38.63 trillion won on June 24.
But some analysts see the recent sell-off as a buying opportunity rather than the start of a prolonged downturn.
“The Korean stock market appears to have entered a phase where valuations have reached trough levels, while both stock price and fund-flow volatility are appearing to be peaking,” said Han Ji-young, an analyst at Kiwoom Securities.
“While the company's blockbuster IPO may weigh on sentiment by heightening concerns over intensifying competition from Chinese memory chipmakers, the scope for actual capital outflows from Korean semiconductor stocks appears limited as CXMT is not yet eligible for trading through the Shanghai-Hong Kong Stock Connect, meaning foreign investors cannot freely buy or sell its shares.”
