A display board at Hana Bank's dealing room in Jung-gu, Seoul, shows the closing prices of the Kospi, SK hynix and Samsung Electronics on July 3, when the Kospi recovered the 8,000-point level. The index ended the session up 440.25 points, or 5.76 percent, at 8,088.34, while the Kosdaq rose 1.69 points, or 0.19 percent, to close at 868.41. [Yonhap]
A display board at Hana Bank's dealing room in Jung-gu, Seoul, shows the closing prices of the Kospi, SK hynix and Samsung Electronics on July 3, when the Kospi recovered the 8,000-point level. The index ended the session up 440.25 points, or 5.76 percent, at 8,088.34, while the Kosdaq rose 1.69 points, or 0.19 percent, to close at 868.41. [Yonhap]

Last week's selloff in South Korean equities was more than a routine correction — it amounted to a crisis of confidence. The Kospi, which had been racing toward the 10,000-point mark as Middle East geopolitical risks eased, shed more than 20 percent from its recent peak in just two weeks, briefly surrendering the psychologically critical 8,000-point support level. The rout was driven largely by a wave of selling in large-cap semiconductor stocks as AI optimism — the very force that had propelled the market higher — began to crack.

According to Korea Exchange data released Saturday, the Kospi closed July 3 at 8,088.34, down 322.87 points, or 3.84 percent, from the previous week. At its intraday low, the index had fallen more than 21 percent from its all-time high of 9,385.59 set June 19, touching the upper 7,300s. Institutional buying led by pension funds helped the benchmark recover the 8,000 level by the end of the session, but market anxiety remains elevated.

The trigger for this correction was not geopolitical but a fundamental question about the durability of AI investment. Reports that Meta was exploring entry into the cloud business by monetizing idle computing capacity at its AI data centers sparked fears that AI infrastructure spending could be heading toward oversupply faster than expected. Those concerns deepened when news emerged that Apple had begun negotiations to purchase memory chips from Chinese chipmaker CXMT, raising the prospect that the memory chip cycle may have already peaked.

The fallout hit the semiconductor sector — the biggest beneficiary of the AI investment cycle — hardest. The Philadelphia Semiconductor Index plunged more than 6 percent, and domestically, Samsung Electronics and SK hynix tumbled more than 9 percent and 14 percent, respectively, leading the broader index lower. Foreign investors net-sold more than 19.8 trillion won ($12.7 billion) on the main bourse last week, with the bulk concentrated in semiconductor heavyweights such as Samsung Electronics and SK hynix. The prevailing market view is that the selling reflects a global portfolio rebalancing — a reduction in AI chip exposure — rather than a wholesale exit from Korean equities.

Fear gauges also hit extreme levels. The KOSPI 200 Volatility Index, known as the VKOSPI and often called South Korea's fear index, surged to 89.29 on July 3. That compares with a typical reading of around 20, making it an exceptionally high figure. On an annualized basis, the reading implies average daily swings of more than plus or minus 5 percent, underscoring how severely investor anxiety has spiked.

Still, a growing chorus of cautious voices argues it is too early to conclude that the plunge signals a deterioration in corporate fundamentals or the start of a recessionary downturn. The prevailing view among these analysts is that the recent correction reflects a valuation reset — unwinding the excessive AI investment expectations that had been priced in — rather than a genuine deterioration in earnings. The fact that institutions rushed in with large-scale bargain buying near the close also suggests that sentiment, not fundamentals, was the primary driver of the decline.

This week, market attention turns back to semiconductors. The most closely watched event is Samsung Electronics' preliminary second-quarter earnings, due Monday. Investors are focused less on the headline profit figure itself than on whether the memory chip market — particularly HBM and DRAM — remains on solid footing. An earnings surprise, with operating profit beating market expectations, could go a long way toward easing concerns about a slowdown in AI investment and may help calm foreign selling.

If results disappoint, however, the debate over an AI investment cycle slowdown could intensify. Additional data points to watch include the minutes from the latest Federal Open Market Committee meeting, China's consumer and producer price indexes, and TSMC's monthly sales figures due Thursday — all of which will offer clues about global IT demand and AI spending trends. Analysts say a fuller picture will not emerge until mid-month, when TSMC and ASML report quarterly earnings and US big-tech companies disclose their second-half capital expenditure plans. Only then, they say, will it be possible to judge whether this correction is a temporary pause or a genuine inflection point in the AI investment cycle.

Ultimately, this week shapes up as the first real test of whether the AI bubble narrative was an overreaction or an early warning of a semiconductor downturn. Samsung Electronics' earnings will be the opening data point.


attom@heraldcorp.com