South Korean Stock Market at 3-Month Low as AI Sell-Off 2026

The South Korean stock market has plunged to a three-month low as the AI sell-off intensifies, with investors dumping chip stocks amid concerns over AI companies' massive borrowing for datacentre expansion. The Kospi index dropped 11.5% to its lowest since mid-April, while SK Hynix and Samsung Electronics fell over 10%.

Why the AI Sell-Off Is Hitting South Korean Markets Hard

The sell-off is driven by fears that AI infrastructure spending may be overhyped, especially as Chinese competitors ramp up production of chip-making tools. A report by The Information revealed that China has begun mass production of homegrown deep ultraviolet (DUV) lithography equipment, threatening the dominance of global leaders like ASML and Applied Materials.

This news spooked investors, leading to a broad tech sell-off across global markets. On Wall Street, Intel, AMD, Sandisk, Western Digital, and Seagate all dropped by more than 4% at the open. The Nasdaq 100 briefly entered correction territory, falling 10% below its June record high before recovering to trade flat.

Impact on Key Semiconductor Stocks

South Korea's two largest chipmakers, SK Hynix and Samsung Electronics, experienced significant losses, dragging the Kospi down. These companies are heavily reliant on AI memory chip demand, making them particularly vulnerable to any slowdown in AI investment.

China's Chip-Making Progress Rattles Investors

The sell-off was triggered by reports that China's CXMT, a memory chip maker, saw its shares soar 466% on its Shanghai debut, underscoring China's push to build a self-sufficient AI supply chain. Analysts believe this progress threatens the competitive edge of global chip leaders.

"We believe the market was likely spooked by the progress of China's chip-making equipment capabilities," said Jing Jie Yu, an equity analyst at Morningstar, adding that the sell-off was "largely a kneejerk reaction and overdone."

Circular Funding Concerns in AI Industry

Investors are also growing jittery about the "circular funding" at the heart of the AI industry, where tech giants invest in each other's AI startups, creating a fragile financial ecosystem. This raises questions about the sustainability of AI-driven growth.

Apple Bucks the Trend as Safe Haven

Amid the chaos, Apple rose to briefly become the second company ever to reach a $5 trillion valuation, as investors sought safer assets. This flight to quality highlights the divergence between AI-exposed stocks and more stable tech giants.

• Key takeaway: The AI sell-off is a global phenomenon, hitting South Korea and US chip stocks hardest.
• Key takeaway: China's advancements in chip-making equipment are a major competitive threat.
• Key takeaway: Circular funding in AI could amplify market volatility.
• Key takeaway: Apple's rise shows investors still favor cash-rich mega-caps.

What's Next for the South Korean Stock Market?

While the current downturn may be overdone, investors should watch for further developments in China's chip industry and AI spending trends. The Kospi's recovery will depend on whether semiconductor earnings remain strong despite the sell-off.

For now, the market remains fragile, with any negative news on AI or China capable of triggering further declines. However, some analysts see this as a buying opportunity for long-term investors.

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