The KOSPI fell below the 6,400 level for the first time in two months, as foreign investors extended a selling spree that has reached 200 trillion won this year. Korean shares slid even as Samsung Electronics (005930.KS) posted record earnings and as oil prices and interest rates held steady, and analysts say the market may need considerable time to regain momentum as buying support weakens with the end of share buybacks at the country's two largest chipmakers.
The KOSPI closed at 6,384.24 on the 12th, down 241.69 points, or 3.65%, from the previous session, according to the Korea Exchange. It was the first close below 6,400 since Aug. 11, when the index ended at 6,345.53, and the steepest percentage drop since Sept. 2, when it fell 3.99%. The KOSDAQ tumbled 43.08 points, or 4.83%, to 849.19, its largest decline since July 29, when it lost 6.12%.
Analysts pointed to weakness in U.S. chip stocks as the immediate trigger. The Philadelphia Semiconductor Index dropped 3.78% on the 8th and 9th, when Korean markets were closed, amid talk of a bubble in OpenAI-related valuations. U.S. memory chipmaker Micron Technology fell 5.42% over the same period. The deterioration in sentiment toward U.S. semiconductor shares spilled over into the Korean market, where memory chipmakers such as Samsung Electronics and SK hynix (000660.KS) carry heavy index weightings, analysts said.
Still, the scale of Korea's decline is hard to explain by U.S. chip weakness alone. Excluding Japan, where markets were closed, Korea underperformed Taiwan, another market with a large semiconductor sector. Taiwan's Taiex closed at 49,301.96, down just 0.02%, in sharp contrast to the KOSPI and the KOSDAQ. Samsung Electronics, meanwhile, reported a record third-quarter operating profit of 107 trillion won, and data released on the 12th showed exports in the first 10 days of October doubled from a year earlier on surging chip shipments, the highest ever for the period.
Analysts said Korea swung more sharply than its peers despite shared external headwinds because doubts about the staying power of domestic memory chipmakers' profitability converged with thinning market liquidity. Investor attention has shifted from this quarter's record profit to whether companies can sustain high margins and growth rates beyond next year, making strong results alone insufficient to draw additional buying. "The key variable driving share prices on both the KOSPI and the KOSDAQ is earnings, but it is the growth rate rather than the absolute size," said Eun Chi-kwan, head of equity management at Korea Investment Management. Korea's projected profit growth for next year is not behind that of major economies, but the slowdown in growth from this year is steeper than in the U.S., Taiwan and Japan, he said.
High interest rates and uncertainty in the Middle East are also constraining foreign purchases of Korean equities. Foreign investors sold a net 2.01 trillion won on the main board on the 12th, bringing their cumulative net selling this year to 199.11 trillion won. "Foreign investors are not only worried about individual chipmakers but are also reducing exposure to risk assets and emerging-market assets as part of global allocation decisions in response to geopolitical risk," said Lee Young-gon, head of research at Toss Securities.
The market's capacity to absorb that selling has also weakened. Retail investors who bought shares above the 7,000 level on the KOSPI remain an overhang, and with Samsung Electronics having completed its buyback and SK hynix nearing the end of its own, concerns about a gap in buying support have added to the strain. "Corporate earnings are relatively good, but liquidity has thinned, so the market is reacting sensitively even to minor negative news," said Lee Jin-woo, head of research at Meritz Securities (008560.KS).
The difficulty is that this supply-demand pressure is unlikely to ease quickly. A shift back to net buying by foreign investors, and a market rebound, would require not only stable rates and oil prices but also confidence that chipmakers can keep growing profits beyond next year. Shin Joong-ho, head of research at LS Securities (078020.KS), said a meaningful return of foreign capital in the second half of this year would be difficult given high interest rates and the risk of further monetary tightening. Hwang Seung-taek, head of research at Hana Securities, also said it would take time to work through overhead supply and attract fresh money, forecasting a square-root-shaped recovery — an initial bounce followed by a gradual climb — rather than a sharp V-shaped rebound. The pace and strength of any recovery will depend on the durability of chip earnings growth and a turn to net buying by foreign investors, he said. Park Yeon-joo, head of the AI research center at Mirae Asset Securities (006800.KS), stressed the importance of confirming AI revenue growth and investment plans when Big Tech companies report earnings later this month.