KOSPI Posts 18.8% Quarterly Drop as Chip Losses and Leverage Hit Market

South Korea’s benchmark KOSPI fell 18.8 percent during the third quarter, turning one of the world’s strongest equity rallies into a sharp reversal as declines in memory-chip shares spread across the broader market.

The index lost nearly one-fifth of its value from July through September, the weakest performance among major global stock markets over that period. By comparison, the U.S. S&P 500 gained 2.3 percent during the same three months.

The downturn followed an exceptionally strong start to the year. The KOSPI had climbed about 60 percent before the artificial intelligence-driven rally began to lose momentum in early July. Selling then concentrated on memory semiconductor companies, exposing the market’s dependence on a small group of heavyweight stocks.

Samsung Electronics and SK hynix together account for close to half of the KOSPI’s total market capitalization. That concentration means declines in the two chipmakers can pull down the entire index even when conditions elsewhere in the economy or market are more stable.

Leverage also intensified the retreat. Borrowed-money bets on Korean memory stocks were unwound after a hedge fund founded by a former OpenAI employee collapsed, prompting the liquidation of large leveraged positions. Single-stock leveraged exchange-traded funds, which seek to deliver twice the daily movement of an individual company’s shares, added another source of volatility because they magnify both gains and losses.

The correction has clouded the near-term outlook after the KOSPI’s earlier surge, but expectations for Korea’s semiconductor sector have not disappeared. Global investment in AI infrastructure continues, supporting demand for high-bandwidth memory and other advanced chips. Samsung Electronics and SK hynix remain central suppliers in the global HBM market.

Foreign investor exposure also remains substantial. Investors from nine European countries held 701 trillion won in Korean shares at the end of August, more than double the level a year earlier. The increase outpaced the KOSPI’s rise over the same period, indicating that higher prices alone did not account for the growth in holdings.

Korea’s role in the AI supply chain is drawing fresh attention from overseas chipmakers. AMD Chair and Chief Executive Lisa Su is scheduled to visit Seoul for an industry roundtable on October 8, where cooperation with Korean AI semiconductor companies is expected to be discussed. The potential collaboration would combine AMD processors with neural processing units developed by Korean firms.

The market’s third-quarter performance highlights two competing forces. Heavy concentration and leveraged products can deepen a selloff when chip shares turn lower, while Korea’s importance as both a producer and buyer of AI hardware continues to support the sector’s longer-term case.