South Korea’s KOSPI index plunged nearly 23% in July 2026, erasing about ₩250 trillion in market value. This marked the largest monthly drop in the index’s history, with circuit breakers triggering a record seven times within just two weeks. The shockwaves extend beyond local markets, reflecting a sharp reassessment of semiconductor and AI chip demand worldwide.

The KOSPI had peaked at 9,114 points in June, fueled by enthusiasm around AI and semiconductor stocks, particularly tech giants Samsung Electronics and SK Hynix. However, by early July, the index had already slipped below 8,000 points. Selling accelerated sharply, triggering multiple circuit breakers designed to prevent panic selling spirals. On July 13 alone, the index dropped almost 9%, marking the seventh trading halt of the year.

Samsung and SK Hynix’s stocks bore the brunt of the selloff, with daily declines reaching 9% to 12%. These two companies dominate the KOSPI’s market capitalization and play a critical role in the global semiconductor supply chain, particularly in memory chips. Their stock collapse signals a broader cooling in AI chip demand, which had been priced as nearly unlimited during the recent rally.

The catalyst was a sudden shift in market sentiment regarding the sustainability of AI-driven semiconductor demand. After months of bullish expectations, cracks appeared in the narrative, triggering a sharp reversal. Foreign investors and institutional sellers intensified the pressure, while the widespread use of leveraged ETFs among Korean retail investors amplified losses. Leveraged products forced rebalancing amid falling prices created a feedback loop, exacerbating the downturn.

This selloff’s scale and speed stand out globally. The seven circuit breakers by mid-July surpassed annual totals of previous years, highlighting extreme volatility. South Korea's market is often viewed as a barometer for global tech demand given its semiconductor industry dominance. A collapse here suggests caution for investors betting on AI and chip-related growth worldwide.

Leveraged ETFs, in particular, warrant attention from regulators and investors alike. Their mechanical impact on price swings can magnify market stress and potentially create systemic risks. This dynamic is critical as the tech and semiconductor sectors face recalibrated growth expectations.

This material is informational and does not constitute financial advice.