South Korea's KOSPI tumbles over 12% after SK Hynix results, crashes 21% in two days

South Korea's equity market witnessed another day of heavy selling on Wednesday, extending the previous session's rout as investors dumped artificial intelligence (AI)-linked stocks despite record quarterly earnings from memory chip giant SK Hynix. The benchmark KOSPI index plunged over 12%, triggering a market-wide trading halt for the second consecutive session and highlighting the rapid unwinding of one of this year's strongest AI-driven equity rallies.

The latest decline came after an 11% slide in the previous session, taking the benchmark's losses to more than 21% in just two trading days. The KOSPI slipped below the 6,000 mark for the first time since early April and is on track for its worst monthly performance on record, having fallen around 35% this month. On the year-to-date basis, the South Korean equity benchmark is up around 28%, while it delivered over 70% returns in the past one year.

The correction marks a dramatic reversal for South Korean equities, which had surged earlier this year on optimism surrounding the AI boom, led by semiconductor heavyweights SK Hynix and Samsung Electronics.

However, investors have become increasingly cautious as valuations soared and questions emerged over whether massive AI infrastructure investments would generate returns sufficient to justify lofty expectations.

Record earnings fail to lift sentiment

Chipmakers bore the brunt of Wednesday's selloff. Shares of SK Hynix tumbled about 15%, while Samsung Electronics fell nearly 8% ahead of its quarterly earnings announcement scheduled for Thursday. SK Hynix shares have slumped over 30% in two days despite posting record quarterly results.

The world's second-largest memory chipmaker reported second-quarter revenue of 79.3 trillion won, operating profit of 60.5 trillion won, and net profit of 93.9 trillion won, its highest-ever quarterly performance. Revenue surged 257% year-on-year, while operating profit jumped 557%, driven by strong demand for high-bandwidth memory (HBM), AI server DRAM, and enterprise solid-state drives (eSSD).

The company also posted an operating margin of 76%, reflecting the profitability of its premium AI-focused memory portfolio. Cash and cash equivalents rose to 88 trillion won at the end of the second quarter, while total debt declined to 18.6 trillion won, resulting in a net cash position of 69.4 trillion won and significantly strengthening its financial flexibility.

SK Hynix said sustained investments by major technology companies in AI infrastructure continued to drive demand for advanced memory products. It also achieved another milestone, with cumulative first-half revenue exceeding 100 trillion won for the first time in the company's history.

AI boom faces reality check

The broader weakness in South Korean technology stocks has reverberated across global markets, prompting investors to reassess valuations across the semiconductor industry and the wider AI ecosystem.

According to a recent report by Elara Securities, global industrial funds have witnessed sustained outflows over the past four weeks, the first such trend since the AI-driven rally began in May 2025. In contrast, technology-focused funds continue to attract the strongest inflows, highlighting investors' preference for companies viewed as direct beneficiaries of AI rather than firms across the broader supply chain.

"Global industrial funds recorded negative rolling four-week flows for the first time since the AI trade began in May 2025. Technology funds continue to attract the strongest inflows, reaffirming that investors continue to favour direct AI beneficiaries over the wider AI supply chain," the brokerage said in a report.

Elara also pointed to a gradual revival in investor appetite for emerging markets after the MSCI Emerging Markets Index corrected about 10% from its recent high. Global Emerging Market (GEM) funds attracted inflows of $1.9 billion last week, following $1.8 billion in the previous week. The combined inflows of $3.7 billion over the two weeks have offset nearly 28% of the $13 billion withdrawn during the preceding 10 weeks.

Across Asia, foreign investment flows into Taiwan and South Korea have slowed, but domestic investors have stepped in aggressively during the recent correction. Taiwan's domestic funds recorded their second-largest weekly inflow of $4.8 billion, while South Korea also witnessed a notable increase in local buying during its three-week market decline.

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