South Korean shares experienced a sharp 8% decline on Thursday, with the KOSPI falling as much as 8% and briefly triggering a sidecar trading curb as investors fled AI-linked stocks amid mounting concerns. The index dropped to a low of 6,731, snapping a two-session gaining streak and continuing to remain in bear territory as it has now fallen more than 28% from its June peak of 9,386. The selloff was driven by renewed selling in chipmaker stocks following the Bank of Korea's first interest rate hike in over three years. The central bank's seven-day repurchase rate was raised by 25 basis points to 2.75% on July 16, with all seven members of the Monetary Policy Board supporting the decision. The rate hike, predicted by all but one of 37 economists surveyed in a Reuters poll, aligns the BOK closely with regional neighbour the Bank of Japan, which recently raised its own benchmark rate to a 31-year high.
Major chipmakers bore the brunt of Thursday's selloff, with Samsung shares falling around 24% in one month and SK Hynix plunging more than 21%, significantly worsening from previous declines. Despite recent volatility, SK Hynix and Samsung Electronics make up just over half of the benchmark KOSPI index, having contributed roughly two-thirds of its gains this year. The semiconductor sector concentration has heightened concerns about market stability compared with other major equity markets where single companies represent a much smaller share of benchmark indices. Among other sectors, battery maker LG Energy Solution climbed 1.79%, while Hyundai Motor and sister automaker Kia Corp were down 2.30% and up 0.69%, respectively. Of the 904 issues traded, 433 shares advanced while 429 declined, with foreigners being net sellers of shares worth 776.8 billion won.
The rate hike comes as South Korea's cryptocurrency market was already experiencing significant cooling. Cryptocurrency holdings among South Korean investors dropped from about $83.3 billion in January 2025 to $41.4 billion by February 2026, while daily trading volume across five major domestic exchanges declined from about $11.6 billion in December 2024 to roughly $3 billion in February. Won deposits held at exchanges fell from 10.7 trillion won to 7.8 trillion won, pointing to weaker cash demand for crypto trading. The latest crypto selloff was triggered by sharp declines in Asian semiconductor stocks, with MSCI's Asia Pacific equities gauge dropping 3% and Japan's Nikkei 225 slumping 5% in its worst session since March. Ether fell 4% to $1,850, underperforming bitcoin despite strong inflows of nearly $97 million into U.S. spot ether ETFs this week, while Hyperliquid's HYPE dropped 10% and Solana slid 2% to $75.
Despite recent losses and volatility, the KOSPI has risen more than 58% so far this year, making it one of the best-performing indexes globally despite the latest crash. This dramatic reversal follows an extraordinary AI-driven rally that pushed South Korean equities to unprecedented levels, driven primarily by strong earnings expectations for semiconductor giants Samsung Electronics and SK Hynix. The index remains the world's best-performing major equity market this year, posting gains of around 58%, far ahead of the roughly 10% advance in MSCI's broad global equity index. The selloff comes amid an overall downtrend in global stock markets as oil prices shot up amid escalations in the Middle East war, with Brent crude rebounding to about $85 a barrel and up 12% on the week.
