Kospi tumbles 5% as semiconductor concerns and Middle East tensions rattle markets

The Kospi fell sharply Wednesday as lingering concerns over a peak in the semiconductor cycle combined with a fresh flare-up in Middle East geopolitical tensions, briefly threatening the 7,000 level during intraday trading. Investor sentiment deteriorated rapidly, triggering sell-side sidecars on both the Kospi and Kosdaq markets.

According to Korea Exchange, the Kospi closed down 409.52 points, or 5.35 percent, at 7,246.79.

The index opened lower, staged a brief rebound in the morning, then reversed course and resumed its decline.

Foreign investors were net buyers of 331.1 billion won ($217 million) on the main board Wednesday — their first net purchase in 14 trading sessions since June 18.

Institutions and retail investors, however, drove the index lower with net selling of 337.7 billion won and 45.1 billion won, respectively.

A sell-side sidecar was triggered at around 1:31 p.m. amid the sharp decline. So far this year, sidecars have been activated 33 times on the main board — 16 buy-side and 17 sell-side — meaning they have been triggered roughly once every four trading sessions through the 126th trading day of the year.

Analysts attributed the day's steep losses to a rapid deterioration in investor sentiment, driven by the intensifying debate over whether semiconductor stocks have peaked and compounded by a renewed escalation of military conflict in the Middle East.

"The Kospi fell again during the session after news broke of expanded US airstrikes," said Seo Sang-young, a researcher at Mirae Asset Securities. "In particular, when reports emerged in the afternoon that Iran had attacked more than 80 US military facilities in Kuwait, Bahrain and other locations, the losses widened further."

He added that the Korean stock market's decline was driven more by supply-demand pressure stemming from Iran risk than by problems specific to the semiconductor sector.

Han Ji-young, a researcher at Kiwoom Securities, said supply-demand distortions from single-stock leveraged products centered on domestic semiconductor shares have deepened, and fatigue from consecutive corrections and intraday volatility spikes has peaked — leading investors to sell into any rebound and panic-sell on the way down.

Major semiconductor stocks fell sharply as the debate over a potential peak in the semiconductor supercycle continued. Samsung Electronics closed down 6.25 percent at 277,500 won, while SK hynix dropped 5.68 percent to 2.076 million won.

Other large-cap names also weighed on the index, with SK Square falling 6.34 percent, Samsung Life dropping 7.73 percent and Samsung C&T declining 6.95 percent.

The Kosdaq also tumbled, closing down 46.23 points, or 5.56 percent, at 785.00 — falling below the 800 level for the first time in about 10 months. A sell-side sidecar was triggered on the Kosdaq at around 1:33 p.m.

On the Kosdaq, foreign investors were net buyers of 337.1 billion won, while retail investors and institutions were net sellers of 192.6 billion won and 145.1 billion won, respectively.