South Korea’s financial authorities are rushing to stabilize the country’s stock market after a sharp sell-off fueled by concerns that the AI-driven investment boom may be losing momentum.
While AI-related stocks have continued to attract significant investor interest in the United States and Europe, South Korea is experiencing a much steeper correction. The Korea Composite Stock Price Index (KOSPI) has fallen more than 40% from its June peak after semiconductor giant SK Hynix failed to meet investor expectations despite reporting quarterly earnings that increased sixfold.
The decline has triggered widespread concern across the country’s financial markets.
According to Seoul Economic Daily, trading on the Korea Exchange was interrupted by two consecutive circuit breakers on July 28 and July 29. Circuit breakers automatically suspend trading for 30 minutes when markets experience extreme volatility, giving investors time to reassess market conditions before trading resumes.
The latest disruption marks the first time in the history of the KOSPI that circuit breakers have been activated on two consecutive trading days. Overall, it represents only the 14th and 15th circuit-breaker activations since the Korea Exchange introduced the safeguard.
Heavy losses were not limited to the KOSPI. The technology-focused Korea Securities Dealers Automated Quotations (KOSDAQ) index also triggered circuit breakers on back-to-back trading days. It is only the third time such an event has occurred, with the previous instances taking place during the market turmoil of 2020 and the global financial crisis in 2008.
The repeated trading halts have highlighted growing concerns over the level of volatility affecting South Korea’s equity markets.
In response to the sell-off, the South Korean government has begun introducing measures aimed at restoring investor confidence and preventing a broader financial crisis.
Officials have already prohibited the listing of new single-stock leveraged exchange-traded funds (ETFs), a high-risk investment product that has been blamed for amplifying market swings. Despite that move, significant capital has continued flowing out of Korean equities, suggesting additional intervention may be required.
According to Bloomberg, senior government officials are now holding emergency discussions to evaluate further steps that could help stabilize financial markets.
“We’ve already put in place a package of measures, but if it’s needed we’ll introduce additional steps to help normalize the market,” Finance Minister Koo Yun Cheol told lawmakers, according to Bloomberg.
The sharp market downturn has also become a political issue.
Members of South Korea’s conservative People Power Party criticized the government’s handling of the situation, arguing that regulators failed to contain growing market speculation before volatility spiraled.
Lawmaker Lee Jongwook sharply criticized the current conditions, saying that the “country has turned into a casino,” reflecting growing political pressure on the government to restore stability and investor confidence.
Source: Based on reporting by Seoul Economic Daily and Bloomberg.
