Seoul, July 8, 2026 — South Korea's benchmark KOSPI index tumbled 5.35% on Wednesday, closing at 7,246.79 and falling 20.5% below its record high of 9,114.55 reached on June 22. The decline has pushed the index into bear market territory, driven by sharp losses in heavyweight chipmakers Samsung Electronics and SK Hynix amid growing doubts over memory pricing and artificial intelligence spending.
Samsung Electronics fell 6.3%, while SK Hynix lost 5.7%, leading the broader market downturn. The Philadelphia Semiconductor Index also dropped 4.7% overnight, reflecting a global selloff in chip stocks. Analysts at Kiwoom Securities cited concerns about a slowdown in memory price growth and uncertainty over whether earnings have peaked, contributing to the negative sentiment.
Leveraged ETFs Add to Volatility
A new class of financial products has emerged as a secondary source of market turbulence. Single-stock leveraged and inverse exchange-traded funds (ETFs) tied to Samsung Electronics and SK Hynix, introduced by the Korea Exchange in May, have seen explosive trading volumes. On July 7, 16 such products traded 13.113 trillion won ($8.2 billion), accounting for 35.9% of total ETF turnover. Their combined net assets peaked at 12.7 trillion won on June 25 before falling by 2.69 trillion won.
The products have triggered six circuit breakers this year, matching the total number before 2026, and 32 sidecars, surpassing the previous annual record of 26 set in 2008. Finance Minister Koo Yun-cheol acknowledged that leveraged ETFs have brought significant volatility to the stock market, and the Financial Supervisory Service is reviewing their market impact and marketing practices.
Earnings Strength Fails to Stem Losses
Samsung Electronics estimated second-quarter operating profit at 89.4 trillion won, a 19-fold increase year-over-year, but its shares still fell 6.9% on Tuesday. Albert Yong, managing partner at Petra Capital Management, noted that strong earnings were widely expected and investors remain focused on the sustainability of the AI boom. The reversal was swift, with Samsung falling as much as 7.6% after initially rising 1.4%, and SK Hynix dropping 5.2% after a 5.8% gain.
Park Yuak, an analyst at Kiwoom Securities, cut his Samsung target price by about 9% to 390,000 won, citing higher component costs and more cautious memory customers. The selloff erased early bargain buying, highlighting the market's nervousness.
SK Hynix ADR Sale and Currency Impact
SK Hynix is proceeding with a $28 billion American Depositary Receipt (ADR) offering, which was covered multiple times and is set to begin trading on Nasdaq on July 10. The deal is expected to be the second-largest after SpaceX's $85.7 billion IPO. Ten ADRs will represent one SK Hynix common share. Dollar-selling tied to the ADR sale helped push the won to 1,498.1 per dollar, its strongest level since May 29, with Brent Donnelly of Spectra Markets calling it a material dollar-won flow.
The Korea trade's size is now affecting broader emerging-market positioning. HSBC Holdings closed its overweight call on emerging-market equities on Wednesday, citing concerns that AI over-spending could hurt semiconductor stocks and disproportionately impact EM Asia.
Regulatory and Market Outlook
Won Jai-hwan, a finance professor at Sogang Business School, said the volatility reflects the market's heavy concentration in semiconductor stocks. He suggested regulators could tighten investor safeguards by extending mandatory education and raising minimum deposits. Kim Seok-hwan of Mirae Asset Securities estimated valuation losses of about 400 billion won for Samsung-linked ETFs and 600 billion won for SK Hynix-linked ETFs.
With the KOSPI in bear territory and leveraged ETFs amplifying moves, investors face heightened risks. The market's reliance on two stocks that account for roughly half of the index's market value underscores the need for diversification and cautious positioning in the months ahead.
