The South Korean stock market is in free fall, and these are the reasons

Cheap Chinese competition and a high-profile comparison of AI investors to gamblers at the casino hitting chip stocks The Korean market peaked in June at 9,385. On Tuesday it closed at 6,035. The Korean stock market is in free fall once again. Fears of cheaper Chinese competition making up ground and criticism leveled at investors in AI stocks by Broadcom's chief executive combined to wipe more than 5% off its benchmark Kospi index. After suffering heavy losses on Friday and Monday, the Kospi's KR:180721 losing streak stretched to five sessions, and the market now languishes more than a third below the all-time high set in June of this year. Korea's two largest companies by market capitalization, Samsung Electronics (KR:005930) and SK Hynix (KR:000660), bore the brunt of the selloff with falls of 10% and 7%, respectively, and the pair was responsible for roughly half the market's decline. Korea's stock-market fortunes are often taken as a proxy by investors for the AI trade as a whole. Nasdaq-100 (NQ00) futures fell by 0.5% on Tuesday. A story published Monday by the South China Morning Post detailed the progress made on memory-chip architecture by China's biggest semiconductor manufacturer, CXMT (CN:688825). Technological breakthroughs have enabled it to increase the storage density of its chips, boosting the Chinese competitive threat to Samsung and SK Hynix. While Samsung Electronics and SK Hynix have been generating extraordinary profits and operating on record margins for 18 months, many investors have been concerned about a slowdown in the pace of AI capital expenditure or the competitive threat from cheaper, mostly Chinese, manufacturers. Plummeting share prices for the South Korean memory-chip makers were aggravated by a drop in chip stocks in the U.S. Monday. The Philadelphia Semiconductor Index exchange-traded fund SOX lost 2.5%, while chip plays like Intel (INTC) and Micron (MU) lost ground. Sentiment was damaged further by comments from Broadcom's (AVGO) chief executive officer, Hock Tan, who, speaking at a technology event in Singapore on Monday, likened AI investors to gamblers in a casino. He's not alone in expressing concerns. Nic Puckrin, cross-asset analyst and founder of Coin Bureau, wrote in an email to MarketWatch, "The sell-off we're seeing in chip stocks might look like a tempting buying opportunity for some investors, but I wouldn't treat it as such. It's increasingly looking like the start of structural repricing of the AI trade rather than a short-term dip." Nonetheless, investors in chip stocks will add Tan's views to longstanding concerns about the sustainability of the AI boom and the capex associated with the build-out of AI infrastructure. However, speaking at the same event in Singapore, Intel's CEO Li-Bu Tan offered reassurance for the likes of Samsung and SK Hynix by emphasizing that hardware will remain in short supply for the next two to three years. Moreover, despite the stock-market slump, the fundamentals for Korean companies remain supportive. September exports reached a record $120.9 billion, and the trade surplus hit $49.9 billion, making the year-to-date balance now $252 billion. Little wonder, then, that the Korean won (USDKRW) has rallied almost 10% in the last three months. Exports of chip stocks and artificially cheap currencies have generated huge trade surpluses for Korea and Taiwan. Korean equities are also trading at very low valuations with Samsung's price-to-earnings multiple for 2027 standing at just 3.5 times, according to FactSet, while SK Hynix is 3.3 times. The respective dividend yields, according to FactSet, are 6.5% and 3.5%. The Korean market as a whole is valued at 5.3 times the next 12 months' earnings, compared with an MSCI Emerging Markets Index EEM multiple at just over 10. When it comes to volatility, though, the Korean market has the unfortunate distinction of being a world leader. A report from JPMorgan on global index volatility published Tuesday found that with a realized 30-day volatility of 34%, Korea is way ahead of its nearest competitor, the Nikkei at 21% and more than three times that of the S&P 500. Global Index Volatility Overview. This higher volatility may be a contributing factor to the bargain valuations attached to Korean stocks. -Jules Rimmer This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 10-13-26 0744ET Copyright (c) 2026 Dow Jones & Company, Inc.

The South Korean stock market is in free fall, and these are the reasons

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