Samsung Electronics' headquarters in Yeongtong-gu, Suwon, Gyeonggi Province, on Tuesday [Yonhap]
Samsung Electronics' headquarters in Yeongtong-gu, Suwon, Gyeonggi Province, on Tuesday [Yonhap]

Samsung Electronics shares plunged nearly 10% intraday on Tuesday even as the company reported earnings that far exceeded market expectations, dragging the Kospi down sharply enough to trigger a circuit breaker.

Some analysts say three forces combined to produce the selloff: preemptive profit-taking driven by fears that semiconductor earnings have peaked, a broad downward trend set off by heavy foreign selling and amplified by leveraged exchange-traded funds, and a relative weakening of retail investors' capacity to absorb the foreign supply.

According to Korea Exchange, the Kospi tumbled more than 8% intraday, triggering a circuit breaker that halted trading on the main bourse for 20 minutes starting at 1:51:34 p.m. The halt was activated after the index remained more than 8% below the previous session's closing level for one full minute, suspending all stocks listed on the main market as well as related futures and options trading.

Tuesday's circuit-breaker activation was the sixth this year and the 12th in the index's history. At the moment of activation, the Kospi stood at 7,404.48, down 646.85 points, or 8.03%, from the previous session.

The index opened down 132.13 points, or 1.64%, at 7,919.20 before extending its losses, touching an intraday low of 7,392.04 — a decline of 8.19%. Korea Exchange lifted the circuit breaker and resumed trading at 2:11:33 p.m.

A sidecar — a temporary suspension of program sell orders — was also triggered at 10:23:41 a.m., when the KOSPI 200 futures index fell 66.26 points, or 5.12%, to 1,227.32. The sidecar mechanism activates when the KOSPI 200 futures index drops more than 5% and holds that level for one minute.

Foreign investors led the decline, posting net selling of 3.36 trillion won ($2.19 billion) on the main market. Institutional investors also recorded net selling of 220.3 billion won. Retail investors absorbed much of the pressure, posting net purchases of 3.51 trillion won.

Analysts in the brokerage industry trace the start of the plunge to a "sell on good news" wave of profit-taking that followed Samsung Electronics' earnings release.

The two semiconductor heavyweights bore the brunt: Samsung Electronics fell 9.75% and SK hynix dropped 10.58% intraday. Samsung Electronics had reported preliminary consolidated sales of 171 trillion won and operating profit of 89.4 trillion won, well above market forecasts — but the blowout results paradoxically triggered selling by investors worried that profit growth could slow from here.

Some analysts say the pattern resembles what happened recently with US chipmaker Micron Technology, which also saw profit-taking after a strong earnings surprise. "Just as Micron's earnings beat recently triggered a selloff, preemptive profit-taking emerged from investors worried about a peak, even in the face of record earnings," said Kang Jin-hyeok, a senior researcher at Shinhan Investment.

Doubts about the AI investment cycle added to the pressure. Concerns have grown over the cash-flow burden on Big Tech from expanding AI spending and over the sustainability of the memory chip upcycle, dampening sentiment across the semiconductor sector, some analysts say.

Once heavy foreign selling locked in a downward trend, single-stock leveraged ETFs — whose trading share has grown significantly in recent months — amplified the losses. Because leveraged ETFs rebalance their portfolios before the close each day to maintain a fixed multiple of the underlying index's daily return, they mechanically reinforce trends as volatility rises. With funds concentrated in Samsung Electronics-linked leveraged ETFs, the supply-demand feedback loop in a falling market was particularly pronounced, analysts said.

"Single-stock leveraged ETFs are acting as a catfish in the domestic market's supply-demand environment," said Kim Seok-hwan, a researcher at Mirae Asset Securities. "Samsung Electronics' decline today also reinforced the supply-demand feedback loop."

There are also signs that retail investors — who had been propping up the index against foreign selling — may no longer have the firepower they once did. Investor deposits peaked in June and have since fallen quickly, according to the Korea Financial Investment Association. Deposits stood at around 137 trillion won at the end of June but had dropped to about 118 trillion won as of Friday, suggesting that the retail "ammunition" that had offset foreign net selling is gradually running out.

Analysts, however, say it is too early to conclude that the current AI investment cycle has ended, and they see late-July earnings releases from US Big Tech companies as the critical inflection point that will determine whether AI spending continues and where semiconductor stocks are headed.

Samsung Securities issued an emergency market commentary Tuesday, saying it was "natural" for concerns about AI investment overheating to surface after a sharp run-up, but adding that it did not believe the AI investment cycle had peaked. "The US Big Tech earnings releases at the end of July will be an important inflection point for memory chip stocks," the firm said. "If hyperscalers' commitment to AI investment is reaffirmed, our market will show resilience again."


th5@heraldcorp.com