Korean KOSPI Index

The Korean KOSPI experienced another wild ride on Wednesday before finishing the session down 6%, extending its brutal two-day selloff. Despite SK Hynix reporting a record quarterly operating profit of ₩60.5 trillion, the result missed consensus expectations (₩64.2 trillion), and its announcement of at least US$31 billion in capital expenditure sparked concerns that AI spending will not deliver returns.

• The influential stock initially plunged ~23%, dragging the broader market lower as retail margin calls and leveraged ETF unwinds intensified the selling, before finishing down 7.5%.

The initial catalyst for the latest KOSPI selloff was growing evidence of China’s advancing chipmaking capabilities, which fuelled concerns over the sustainability of the AI spending boom and raised fears that Chinese producers could erode the competitive position of Korean and Taiwanese memory chipmakers. The sharp 40% correction is another example of the risks around crowded/leveraged positions when the music stops playing.

The sell-off broadened across the market on Wednesday, with 716 of 830 KOSPI constituents declining and 17 of 18 sectors finishing in the red, led by electrical and electronics stocks. A market-wide circuit breaker was triggered for the second consecutive session, prompting South Korea’s Finance Minister to convene an emergency meeting of the country’s top financial regulators to address the escalating market turmoil. It shouldn’t really come as a surprise when two stocks make up over 50% of the index!

• We have moved to a neutral stance, remembering how bitcoin and gold have failed to recover from the forced selling in recent years.