South Korean shares fell nearly 2% on Tuesday as renewed concerns over artificial intelligence-related spending and heavy selling in semiconductor stocks overshadowed softer-than-expected inflation data. According to Reuters, the benchmark KOSPI was down 119.25 points, or 1.9%, at 6,138.20 as of 0043 GMT, after climbing as much as 2.1% earlier in the session. The decline followed a drop of more than 5% in the previous trading session, continuing the dramatic reversal from the AI-driven boom that had driven the market to record highs. Seoul's stock market has come under pressure amid a rapid unwinding of leveraged positions linked to major semiconductor stocks, with investors growing increasingly concerned that aggressive capital spending on AI infrastructure by large data centre operators may prove unsustainable.
South Korea's memory chip manufacturers, which had been the biggest beneficiaries of the previous AI optimism, emerged as the biggest losers in the current market decline. As reported by Reuters, Samsung Electronics dropped 3.76% while SK Hynix fell 3.70%, contributing significantly to the benchmark's sharp intraday drop. The strong performance of these memory chip giants, which account for more than half of the benchmark's total market-capitalisation, had previously demonstrated the continued importance of semiconductor stocks in driving KOSPI's movements. However, their current decline shows how quickly sentiment can shift when AI-driven demand begins to moderate.
Economic data released on Tuesday showed South Korea's consumer inflation eased to 2.8% in July from 3.2% in June, coming in below market expectations as lower oil prices helped moderate price pressures. According to Reuters, the softer inflation reading provided some support to sentiment, but it was insufficient to offset the broader weakness in equities. The data comes after the Bank of Korea raised interest rates last month and signalled the possibility of further policy tightening, reflecting the central bank's continued focus on inflation risks. While the inflation relief provided some market support, it failed to counter the negative sentiment from AI spending concerns and semiconductor stock weakness.
Despite the benchmark's decline, market breadth remained positive with 666 of the 910 traded stocks advancing and 211 falling, as reported by Reuters. Among heavyweight stocks, automakers also traded lower with Hyundai Motor declining 3.69% and Kia Corp losing 1.85%. Foreign investors were net buyers of shares worth 249.4 billion won ($174.93 million), providing some institutional support despite the overall market weakness. The mixed performance reflects the selective nature of the current sell-off, with semiconductor and technology stocks bearing the brunt of the decline while other sectors showed resilience.
