South Korean stocks experienced a sharp decline on Friday, with the KOSPI index falling 5.8% after an intraday drop of 8% triggered a circuit breaker. The sell-off occurred despite some relief in oil prices, as investors grappled with the impact of higher memory chip costs on key tech companies.
The KOSPI's decline was driven primarily by Samsung Electronics and SK Hynix, which together account for more than half of the index's value. Their performance is closely tied to memory-chip prices and household debt, making them vulnerable to shifts in global demand for AI-related components.
Apple's 6.1% drop on Thursday, which erased about $250 billion in market value, added to the pressure. The tech giant raised prices on its iPad and MacBook lines to offset rising memory and storage costs, raising concerns about whether chipmakers can continue to pass on higher prices to consumers.
Meanwhile, oil prices continued to ease, with Brent crude falling 1.99% to $73.76 a barrel and West Texas Intermediate down 2.07% to $70.43. Both benchmarks are on track for weekly losses of roughly 8%, as more tankers passed through the Strait of Hormuz after a period of disruption.
South Korea imports nearly 98% of its fossil fuels, so lower oil prices typically provide relief to the economy. However, the market's focus remained on the tech sector, where margin debt reached a record high in June, and retail investors increased their leveraged positions.
Alexander Redman, chief equity strategist at CLSA, noted that volatility has blown out and cautioned about retail margin debt. South Korea's financial regulator acknowledged it was too quick to approve leveraged chip stock funds.
Despite the day's losses, the KOSPI is still up 66% for the quarter, its best quarterly gain since 1998, highlighting how far the AI-driven rally had gone before this correction.
Samsung Group is reportedly preparing a massive 1,000 trillion won ($648 billion) investment pledge over 10 years, focused on chips, AI data centers, batteries, and displays. About 300 trillion won is earmarked for new chip plants in the southwest of South Korea. SK Hynix is also aiming for a $29 billion U.S. listing, which would add more global capital to the AI-memory trade.
