Seoul stocks plunge over 10% after China's semiconductor tech breakthrough sparks AI fears

Seoul's stock market suffered a sharp decline on Tuesday, with the benchmark Kospi index plummeting by 10.3% to close at 6,061.68 points, its lowest level since April. The downturn was primarily fueled by renewed anxieties surrounding artificial intelligence (AI) valuations and a reported technological advancement by China in semiconductor manufacturing.

Leading South Korean semiconductor giants, SK Hynix and Samsung Electronics, bore the brunt of the sell-off, with their shares dropping as much as 12%. These two companies alone represent approximately 40% of the South Korean stock market's total capitalization, amplifying the impact of their stock price erosion on the broader index.

This market reaction follows a trend of volatility in the tech sector. SK Hynix had already experienced a 7% drop on Monday, while Nvidia, a major player in the AI chip market, saw its value decrease by 5% in New York trading, leading Apple to reclaim its position as the world's most valuable company. Analysts suggest that SK Hynix's rapid stock price surge earlier in the year made such a correction almost inevitable.

Despite SK Hynix's expected strong quarterly earnings report, investors are wary of potential demand slowdowns due to rising prices. Furthermore, expansion plans announced by major South Korean chip manufacturers have raised concerns about future overproduction. However, some analysts maintain a positive short-term outlook for the sector, citing the visibility provided by long-term contracts. The Japanese Nikkei index also saw a significant drop, mirroring the downturn in the semiconductor sector influenced by China's reported lithography technology breakthrough.

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SK Hynix's shares had risen "too high, too quickly this year, making this type of correction inevitable."