South Korean Shares Plummet Amid Global Chipmaker Selloff

South Korean shares plummeted on Tuesday, with the benchmark KOSPI index dropping over 7% amid a global selloff in chipmakers. The decline was driven by concerns over intensifying competition from China and steep drops in SK Hynix's U.S.-listed shares.

The KOSPI fell 500.47 points, or 7.41%, to 6,253.81, triggering 'sidecar' trading curbs that temporarily suspended program trading on both the KOSPI and junior Kosdaq index.

SK Hynix sank by over 9% after its American depositary receipts (ADRs) fell to a record low in New York, dropping below their initial U.S. offering price. Samsung Electronics, another major index constituent, fell by 9.15%. The two chipmakers together account for more than half of the KOSPI's weighting, amplifying the impact of the sector-wide selloff on the broader market.

Market sentiment was further dampened by developments in China, including the successful IPO of ChangXin Memory Technologies and reports that a Chinese state-backed firm began producing immersion DUV lithography equipment. Analysts noted concerns over accelerated capacity expansion and technology development by Chinese companies, which could rival Korean firms.

Despite posting record earnings for the second quarter amid the AI boom, SK Hynix's shares continued to plunge on the Seoul bourse. The company reported sales of $55.1 billion and operating profit of $42.1 billion during the April-June period, with revenue more than tripling from a year ago and profit increasing over sixfold.

However, SK Hynix's earnings fell about 5% short of market consensus, raising questions about the sustainability of the AI boom and the company's long-term agreements. Analysts at NH Investment & Securities, Shinhan Securities, Hanwha Investment & Securities, and Samsung Securities revised their target prices downward due to concerns over future earnings.

Samsung Electronics also reported a record operating profit of 89.5 trillion won for the April to June period, driven by strong demand for AI servers and advanced high-bandwidth memory chips. Despite this, both Samsung's and SK Hynix's shares have fallen sharply in recent weeks due to concerns over intensifying competition from China and massive investments in semiconductor manufacturing facilities.

On Friday, South Korea's chip heavyweights SK Hynix and Samsung Electronics experienced a sharp rally, with SK Hynix surging over 25% and Samsung rising more than 20%. This reversal followed a bruising sell-off earlier in the week. The rally was driven by optimism around artificial intelligence spending after blockbuster earnings from Amazon and Microsoft revived investor confidence.

Japanese chip stocks also rallied sharply, with Advantest climbing nearly 18%, Tokyo Electron gaining almost 9%, Disco rising over 13%, Lasertec advancing more than 12%, and Renesas Electronics adding over 10%. SoftBank Group, a key artificial intelligence proxy as it owns Arm, jumped more than 9%.