The Kospi used to dance to Wall Street's tune. Now it's the other way around.

Korea's market once tended to follow Wall Street overnight. Now the Kospi is apparently acting as the epicenter of swings in global chip stocks, with movement on the Korean bourse rippling through markets in Japan, Taiwan and the United States.

The Kospi closed down 5.35 percent at 7,246.79 on Wednesday, its second straight day of steep losses, according to the Korea Exchange. It even slipped below the 7,200 mark at one point during the session. Heavy selling triggered a temporary curb on program selling, known locally as a sidecar. The curb halts program trading when an index swings beyond a set threshold.

The sell-off came even though Samsung Electronics reported better-than-expected earnings the day before, as concern grew that AI-chip stocks had peaked and were losing their upward trajectory. Fresh geopolitical tensions in the Middle East over the Strait of Hormuz weighed further on sentiment.

Trade volume was heavy at 495.75 million shares worth 41.65 trillion won ($27.8 billion). Decliners outnumbered gainers 763 to 124.

Korea's chip giant Samsung Electronics nosedived by 6.25 percent to 277,500 won, while chip giant SK hynix also plunged 5.68 percent to 2,076,000 won. Leading carmaker Hyundai Motor shed 3.55 percent to 462,500 won. Defense company Hanwha Aerospace slid 7.22 percent to 1,041,000 won.

Markets elsewhere moved along with the Korean bourse. Japan's Nikkei 225 fell 2.11 percent on Wednesday, after a 2.12 percent drop the day before. Nasdaq 100 futures were down 0.3 percent as of 4:30 p.m., Korean time, and Micron slid 3 percent in after-hours trading.

On Wall Street on Tuesday, chip stocks, including Intel, fell by 9.66 percent, and Micron fell by 4.71 percent, pulling the Nasdaq Composite down 1.16 percent. Taiwan's Taiex had dropped 2.31 percent the day before, its eighth-largest single-day fall on record, but closed up 0.56 percent on Wednesday.

Over the past 20 trading days, the Kospi and the Nasdaq moved in the same direction on 12 days. On days the U.S. market was closed, two Kospi sessions were combined. The Kospi and the Philadelphia Semiconductor Index matched direction on 15 days, while the Kospi followed the Nasdaq Composite overnight on just eight.

"It is unusual for the volatility of domestic chip stocks to spill over so fully, not only into the Kospi but into Japanese and U.S. futures markets," said Han Ji-young, an analyst at Kiwoom Securities.

The U.S. financial outlet TheStreet described the Kospi as "an overnight barometer of the fortunes of U.S. chip stocks". In Japan, a new word has emerged for the Kospi's sway: "Kospi-nirami," a blend of Kospi and the Japanese nirami (to watch closely). It follows older coinages like "FOMC-nirami" and "yen-nirami," once reserved for the Federal Reserve or the currency.

"In the U.S. market as well, the sector that contributes most to index gains is semiconductors," said Kim Dae-jun, a senior analyst at Korea Investment & Securities. "Because Korean companies lead the world in chips, global markets are moving under the Korean market's influence."

Moves in Samsung and SK hynix shares sway sentiment across global chip stocks, and as chip stocks take up more of major indexes worldwide, the Kospi is setting off a butterfly effect on global markets.

One catch is that concentration within Korea's own market is widening the swings. With money piled into Samsung and SK hynix, single-stock leveraged exchange-traded funds (ETF) that track twice the daily moves of the two stocks are magnifying price swings, analysts say.

Foreign media have also pointed to leveraged ETFs.

When the Kospi plunged 9.99 percent on June 23, Bloomberg reported that Korea's slide set off a global sell-off in chip stocks that pulled down European and U.S. markets, and that leveraged ETFs are increasingly seen as speculative tools that can amplify volatility when the market turns.

BY JANG SEO-YUN [[email protected]]