South Korean stocks plummeted sharply at the open, triggering a market-wide trading halt.
The KOSPI index opened with a loss exceeding 8%, leading to the activation of the first-level circuit breaker mechanism, which suspended trading for 20 minutes. Following the resumption of trading, the index's losses narrowed slightly. Major constituents Samsung Electronics and SK Hynix both saw declines approaching 10% at the open. Japan's Nikkei 225 index also opened significantly lower, dropping over 4%.
In China, the Shanghai Composite Index opened down more than 2%, falling below the 4,000-point level. The Shenzhen Component Index, the ChiNext Index, and the STAR Market Composite Index all registered initial losses exceeding 3% to 4% before gradually recovering. Hong Kong's Hang Seng Index and the Hang Seng Tech Index also opened lower, with declines nearing 2%.
Market Stability Measures
Prior to the market open, the Korea Exchange convened an emergency meeting to assess the current volatile conditions and discuss measures to stabilize market operations. The meeting focused on reviewing the sharp downturn in U.S. equities and overnight futures market movements. The exchange stated it would enhance its institution-wide emergency response system, closely monitor global market trends, developments in the Middle East, and foreign exchange market movements. It also plans to increase scrutiny of unfair trading practices and expand the scope of inspections for illegal short-selling activities.
Recent weeks have seen heightened volatility in the South Korean market, with trading halts occurring frequently. On May 27, the KOSPI triggered a programmatic trading pause after opening up 5%. Earlier, on May 15, a sharp reversal after the index touched 8,000 points also led to a trading suspension.
Structural Vulnerabilities and External Triggers
The rapid swings between sharp gains and losses highlight structural vulnerabilities stemming from the market's high concentration in just two semiconductor companies. Year-to-date, Samsung Electronics and SK Hynix have contributed over half of the KOSPI's gains. These two firms also account for more than half of the index's weighting. This extreme concentration magnifies the impact of any news related to the semiconductor sector.
The immediate external catalyst for the panic was a significant sell-off in U.S. markets. On June 5, the S&P 500, Nasdaq Composite, and the Philadelphia Semiconductor Index fell by 2.6%, 4.2%, and 10.3% respectively. The Philadelphia Semiconductor Index recorded its largest single-day drop since March 2020. Major tech stocks like NVIDIA, Micron Technology, and Broadcom also saw substantial declines.
Analysts point to several factors behind the U.S. market adjustment, including revised monetary policy expectations following strong May non-farm payroll data, previously crowded trades, and specific corporate events such as SpaceX's impending listing, Broadcom's earnings report, and a share offering by Google. Broadcom's report, which indicated its custom AI chip business demand did not meet lofty market expectations, contributed to a two-day cumulative drop of 19%.
Attempts to Bolster Confidence
As market anxiety spread from the U.S. to Asia, NVIDIA CEO Jensen Huang visited Seoul in an attempt to instill confidence. On June 7, Huang dined with SK Group Chairman Chey Tae-won and SK Hynix CEO Kwak Noh-Jung. Huang stated their collaboration spans multiple areas, including AI supercomputers, central processing units, new personal computers, and robotics. He also addressed the global memory chip shortage, expecting it to persist for several years due to insufficient supply across the industry's supply chain against sustained high demand.
On the morning of June 8, NVIDIA and SK Hynix formally announced a multi-year technology partnership. According to the announcement, the companies will jointly develop next-generation memory for global AI factories and apply AI technology to semiconductor chip design and manufacturing. The collaboration will extend into new markets NVIDIA is creating across AI infrastructure, personal AI, and physical AI, with joint development of specialized memory products for platforms like the NVIDIA Vera Rubin AI supercomputer and the Jetson Thor robotics platform.
Underlying Market Risks
Despite these positive developments, they were insufficient to prevent the KOSPI's opening plunge, pointing to deeper structural risks, notably aggressive retail leverage. Data from the Korea Financial Investment Association shows that outstanding margin loan balances for stock purchases had swelled to a record 36.47 trillion won by mid-May, approximately double the level from the same period the previous year. The proportion of margin trading has doubled from 18% a year ago to 35%. The head of South Korea's Financial Supervisory Service has publicly expressed concern over retail investors' risk exposure, warning that the accelerating flow of funds into high-risk products could further exacerbate market volatility.
Regarding the AI industry, analysts note that while the capital market's bullish logic for the AI sector, fueled by computing power demand, is likely to persist in the short term, the industry's progress still lags behind narratives of complete commercial closure. The sector needs to discover more high-value monetization scenarios to justify massive capital expenditures. The market is expected to remain highly volatile in the near term, warranting close attention to risks arising from potential mismatches in the pace of AI investment and output.
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