South Korean markets appear to be suffering an extreme correction after months of AI-driven growth as chipmakers have come under increasing pressure. Is there any way back for KOSPI?
In a warning to its peers over the fragility of dependence on AI for market growth, the Korea Composite Stock Price Index (KOSPI) has suffered a remarkable decline over the past six weeks, shedding more than a third of its value.
This comes after a whirlwind period of growth that saw the index grow 270 percent since the beginning of 2025 toward its peak value in June 2026 – before mass sell-offs took their toll. The index hit an intraday record high of 9,385.59 on June 19, before plunging down to close at 5,663.24 by July 29. The extreme market volatility has drawn comparisons to the index taking the appearance of a meme stock.
Where will KOSPI go from here? And is there a danger of similar jitters sweeping through other tech-heavy Asian markets?
The root cause of the sell-offs stemmed from fluctuations in the race for AI market dominance in Asia and beyond, with fresh competition from China appearing to create severe downward pressure on key KOSPI stocks.
Shares in memory-chip giants Samsung Electronics and SK Hynix fell 13.4 percent and 14 percent, respectively, after reports emerged that Chinese companies were developing domestic deep ultraviolet (DUV) lithography equipment. The news sparked concerns that South Korean firms face strong new competitors when it comes to the global memory market.
China has long threatened the strength of other Asian AI stocks. Beijing’s new plan to spend $295 billion on funding a nationwide AI buildout included an emphasis on using local suppliers like Huawei Technologies for at least 80 percent of its technology – part of a wider strategy to lower China’s dependence on international manufacturers.
Given that the likes of Samsung and SK Hynix account for almost half of the benchmark KOSPI, the index has been especially impacted by fresh competition for those firms, posting a 10 percent decline. However, other Asian stocks have also been impacted.
Japanese flash memory chipmaker Kioxia Holdings tumbled 18 percent as sell-offs spread throughout Asia, and Taiwanese chip designer MediaTek also fell 9 percent as competition from China prompted investor jitters.
KOSPI has become intrinsically linked to semiconductors. In 2024, chipmaking accounted for more than 10 percent of South Korea’s manufacturing output, thanks to growing demand for AI infrastructure off the back of the frenzy caused by the launch of OpenAI’s ChatGPT. 2024 also saw the sector become the country’s largest manufacturing industry, with steelmaking and oil refining in second and third place, accounting for an 8.7 percent and 8.5 percent share, respectively.
South Korea’s semiconductor exports were up 199.5 percent year-on-year in June 2026, reaching $44.8 billion and accounting for 43.8 percent of total exports.
Yet the sector is uniquely vulnerable, and not just due to the quality of Chinese competitors’ chips. South Korean exports are still dependent on the Asian powerhouse as a market and production base, which means that its plants require a conducive regulatory environment between the United States and China to achieve their potential.
Both Samsung and SK Hynix plants in China depend on equipment, components, and software governed by U.S. export controls, and the end-user access validations both firms acquired in 2023 were revoked in September 2025. Although they were granted annual licenses in 2026, the short-term scale has created more fragility for South Korea’s largest sector.
With around 30 percent to 40 percent of SK Hynix’s dynamic random-access memory (DRAM) and NAND flash memory chips made in China, as well as around one-third of Samsung’s NAND chips, a sustained KOSPI recovery will depend on clearing trade tensions between the United States and China, as well as a more concerted outsourcing effort to onboard new AI production talent overseas.
Although the regulatory outlook between the United States and China is becoming more uncertain, there’s hope that a recent initiative launched by the likes of Nvidia, SpaceX, and Microsoft could lead a pushback against tightening restrictions. The U.S. tech sector has rejected calls in Washington to tackle the growing adoption of Chinese AI models domestically, and its success could help to ease geopolitical tensions amid the artificial intelligence adoption race.
If the regulatory climate eases, KOSPI can build better resilience against market shocks, and its seismic boost in semiconductor exports would better insulate the index against investor uncertainty.
Fragility amid the AI boom is continuing to impact many different global markets as investors become increasingly uncertain about the sky-high valuations of leading artificial intelligence players. Samsung and SK Hynix have price-to-earnings (P/E) ratios of between 18x and 24x, which have become commonplace amid the ongoing AI frenzy. But these higher ratios mean that stocks have found it more difficult to absorb market shocks.
This means that signs of new competitors or clouded regulatory outlooks can be especially damaging to markets. With South Korea becoming increasingly dependent on the semiconductor industry and the fortunes of Samsung and SK Hynix, a mass sell-off event was always likely to snowball. For the rest of Asia, similar levels of disruption could severely impact high P/E AI stocks.
For investors, it’s certainly worth taking these mitigating factors into consideration. At a time of great uncertainty surrounding the artificial intelligence ecosystem, high-value stocks could be especially vulnerable to a perceived turnaround in fortunes.
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