The South Korean KOSPI crashes more than 10%, triggering another circuit breaker—how could AI bubble worries ignite semiconductor stocks?

On July 28, 2026, South Korea’s stock market saw an epic plunge. The Korea Composite Stock Price Index (KOSPI) closed at 6,023.63, down 10.84%. During the session, it once fell by more than 11% and fell below the 6,000-point integer level. This was the eighth time this year that the South Korean stock market triggered the market-wide circuit breaker mechanism. In the same period, the KOSDAQ index also fell by more than 8% to trigger a circuit breaker. The “semiconductor twin giants”—SK Hynix and Samsung Electronics—plunged 14.65% and 13.39%, respectively, becoming the core forces dragging down the broader market.

This selloff was not an isolated event. In the overnight U.S. stock market, the Philadelphia Semiconductor Index briefly fell by nearly 5%; it ultimately closed down 2.23%, hitting a new closing low since May 20. The chip selloff wave spread rapidly from the U.S. to Asia. Japan’s Nikkei 225 closed down 3.95%, at 62,364.92; Taiwan’s weighted index closed down 4.65%. A complete transmission chain from the Philadelphia Semiconductor Index to the stock markets of Japan and South Korea was clearly on display.

The Eighth Circuit Breaker This Year: A Complete Record of KOSPI’s “Black Tuesday”

On the morning of July 28, the Korean stock market opened sharply lower. The KOSPI index opened down 5.3% to 6,400.27. Around 08:07 (Beijing time), the Korea Exchange first activated the “Sidecar mechanism,” pausing KOSPI programmatic sell orders. The trigger condition was that the KOSPI 200 futures index’s percentage change versus the prior trading day’s settlement price reached 5% and persisted for 1 minute.

However, the Sidecar mechanism could not stop the decline. Around 09:14 (Beijing time), the KOSPI index’s drop widened to more than 8%, triggering the market-wide circuit breaker mechanism, with trading paused for 20 minutes. After that, the selloff accelerated further, and the KOSPI’s intraday decline briefly exceeded 11%. The KOSDAQ venture board index also triggered a circuit breaker.

From a full-year perspective, this was the eighth time in 2026 that the South Korean stock market triggered a circuit breaker. The previous seven occurred on March 4, March 9, June 8, June 23, June 26, July 7, and July 13, respectively. Since June, a circuit breaker has been triggered on average in fewer than 10 trading days. Meanwhile, the Sidecar mechanism has been triggered 66 times in 2026, exceeding the 45 times during the 2008 financial crisis.

From Philadelphia Semiconductors to Seoul: Cross-Market Transmission in the Chip Selloff Wave

The source of this plunge can be traced to a broad weakening in the U.S. semiconductor sector. On July 27 (Monday), the Philadelphia Semiconductor Index briefly fell by nearly 5% during the day, and ultimately closed down 2.23%. Nvidia closed down 4.99%, with its market value overtaken by Apple; SanDisk closed down 11.02%, with SK Hynix ADR down 7.47%; AMD down 5.17%, while lithography-machine leader ASML fell 5.8%.

The U.S. semiconductor selloff wave spread quickly to Asian markets the next day. As a major global hub for memory chip manufacturing, South Korea saw direct pressure on its two heavyweight stocks—Samsung Electronics and SK Hynix. SK Hynix closed at 1,550,000 won (about $1,062), down 14.65%; Samsung Electronics closed at 220,000 won (about $151), down 13.39%. Samsung Electronics posted its largest single-day drop since October 24, 2008. Its share price had retreated 41% from its historical high on June 19.

The Japanese market was not spared either. NAND flash giant Kioxia plunged 18.33%; Advantest fell by more than 8%; SoftBank Group fell 4.43%. Taiwan’s weighted index closed down 4.65%. From the Philadelphia Semiconductor Index to the stock markets of Japan, South Korea, and Taiwan, a complete and clear transmission chain for the chip selloff has already taken shape.

Concerns About AI “Circular Financing”: A Trust Crisis Triggered by Nvidia’s $750 Billion Deal

The core catalyst for this selloff was the market’s collective questioning of Nvidia’s AI infrastructure financing model. According to insiders, Nvidia is pursuing a series of AI infrastructure deals of unprecedented scale: an AI cooperation project with SK Group exceeding $500 billion; negotiations with OpenAI, planning to provide up to $250 billion in financing guarantee for its data center projects; and discussions about providing $350 billion in financing to purchase chips for OpenAI. The potential total scale of the three deals exceeds $750 billion.

The market’s main concern is the “circular financing” issue—companies that Nvidia invests in and takes equity in typically also buy or use Nvidia chips. Critics warn that such agreements involve unclear financial structures and complex relationships among related companies. Gary Tan, portfolio manager at Allspring Global Investments, said investors are worried about circular financing—an increasing amount of capital is being used to fund future AI customers and infrastructure deployments.

Nvidia’s five-year credit default swap (CDS) spread surged by as much as 14 basis points in a day to 82 basis points at its peak. Doubts in the credit market about Nvidia’s financing model directly translated into a repricing of overall credit risk across the AI industry chain. Massive capital expenditures once viewed as a growth engine are now turning into a “Damocles’ sword” hanging over tech companies.

China’s Rise in Storage Chips: CXMT’s IPO Reshapes the Global DRAM Landscape

Besides concerns about AI financing models, the rapid rise of China’s memory chip industry is another core logic. After CXMT (ChangXin Memory Technologies) was listed on the STAR Market, it drew strong attention from international capital. Investors began reassessing the competitive landscape of the global DRAM market. The market worries that CXMT’s acceleration in capacity expansion could create greater competitive pressure on the market shares of Samsung Electronics and SK Hynix in DRAM.

South Korea’s semiconductor industry dominates the global DRAM and NAND flash markets. Together, Samsung Electronics and SK Hynix control more than 70% of the world’s DRAM market share. Such a highly concentrated industrial structure means that once the competitive landscape shifts, valuation models face extremely intense repricing pressure. News of technological breakthroughs in China’s chip industry further intensified concerns in the market about whether the AI investment boom can continue.

CXMT’s IPO is not an isolated event; it is a microcosm of changes in global semiconductor competition patterns. The market has begun to systematically reassess the long-term competitive barriers and valuation premium of South Korea’s leading memory chip companies.

Heavyweight Concentration and Leveraged ETFs: Structural Fragility in the South Korean Market

The magnitude of South Korea’s stock market plunge far exceeded that of most other Asia-Pacific markets, closely tied to its unique market structure.

Over-concentration in heavyweight stocks. The combined weighting of Samsung Electronics and SK Hynix in the KOSPI index has surged from about 22% a year earlier to more than 50%. Any pullback of individual stocks by 10% or more would directly drag the KOSPI into the 8% circuit breaker range. On July 28, the two major heavyweight stocks both fell by more than 13%, making the broader market collapse almost inevitable.

The “death spiral” of leveraged ETFs. On May 27, 2026, the Korea Exchange first approved the simultaneous listing of 16 2x leveraged ETFs backed by individual stocks, with underlying assets including Samsung Electronics and SK Hynix. Retail investors account for as much as 92% of the investors in these products. Leveraged ETFs’ daily end-of-day rebalancing mechanism naturally forms a negative feedback loop of “falling → passive de-risking → further falling.” Data from the Korea Financial Investment Association shows that, as of July 24, the outstanding balance of margin loans fell to 32.67 trillion won, down more than 15% from the peak on June 24.

Foreign capital’s high share amplifies volatility. South Korea’s market has a high share of foreign capital, making it extremely sensitive to changes in global investors’ risk appetite. Whenever international funds adjust their allocations to technology stocks, South Korea’s stock market often becomes one of the markets where capital concentrates inflows and outflows.

With these three overlapping structural factors, the South Korean stock market’s volatility when hit by external shocks is significantly higher than that of most mature markets.

Regulatory Intervention and Market Clearing: Can Leveraged Funds Exit Smoothly?

In the face of persistent market turmoil, South Korea’s regulators have stepped in multiple times. On July 16, the Financial Services Commission (FSC) announced it would suspend all new listing applications for individual-stock leveraged exchange-traded products and raise the minimum margin requirement from 10 million won to 30 million won. On July 28—the day of the plunge—the FSC issued another announcement, saying it is studying further tightening trading rules for single-stock leveraged ETFs, including considering caps on the investment amounts for individual investors.

FSC Chairman Lee Eog-weon said that if the latest restriction measures fail to achieve the expected effect, further steps will be taken to suppress investors’ demand for leveraged ETFs. The options regulators are considering include: requiring periodic mandatory online training; setting new “prior investment experience” requirements for individual investors; and limiting individual investors’ investment amounts in leveraged ETFs to a specific percentage of total investment assets.

However, whether tightening regulation can effectively curb the negative feedback loop of leveraged funds remains highly uncertain. The strategy team at Daishin Securities noted that although the size of South Korea’s leveraged ETF market has declined, the main reason is the decline in the value of the underlying assets rather than reduced inflows—South Korean investors are still buying leveraged ETFs. This means the probability that the market clears leveraged positions through a rout is low, and active clearing is still likely to depend on regulatory tightening.

Summary

The plunge in South Korea’s stock market on July 28, 2026 was the result of multiple factors converging. On the surface, it was the natural transmission of the U.S. semiconductor selloff wave to Asian markets. At a deeper level, it was the double shock of the market’s trust crisis regarding AI “circular financing” and the reshaping of the global storage chip competitive landscape. At the deepest level, it was the concentrated exposure of structural problems in South Korea’s stock market: overly high concentration in heavyweight stocks, leveraged ETF sprawl, and an excessively high foreign capital share.

Since the June peak, the KOSPI index has retreated by about 36% in total. Frequent circuit breakers do not necessarily mean South Korea’s economic fundamentals have fundamentally deteriorated—circuit breakers are, by nature, a market-stabilization mechanism designed to give investors a “cooling-off period.” But this year’s “roller-coaster” in South Korea’s stock market reflects not only opportunities brought by the AI industry, but also exposes structural risks from excessive reliance on the semiconductor industry and too-high concentration in heavyweight stocks.

In the short term, valuation repricing across the AI industry chain is still ongoing, and uncertainty in U.S. Federal Reserve monetary policy (interest rate futures show roughly a 40% probability of a 25-basis-point rate hike) also adds extra variables for the market. The high-volatility trading conditions in South Korea’s stock market may still continue.

FAQ

Q: How many times did the South Korean KOSPI index trigger circuit breakers in 2026 in total?

As of July 28, the South Korean KOSPI index triggered the market-wide circuit breaker mechanism 8 times in 2026, occurring on March 4, March 9, June 8, June 23, June 26, July 7, July 13, and July 28, respectively. In the prior 25 years from 2000 to 2025, the KOSPI triggered circuit breakers only 6 times.

Q: What is the difference between the Sidecar mechanism and a market-wide circuit breaker?

The Sidecar mechanism mainly addresses programmatic trading shocks caused by sharp volatility in stock index futures. It triggers when the KOSPI 200 futures index’s percentage change reaches 5% and persists for 1 minute, pausing programmatic trading for 5 minutes; ordinary investors’ manual trading is not affected. A market-wide circuit breaker triggers when the KOSPI index’s percentage change reaches 8%, pausing all trading for 20 minutes.

Q: Why is the volatility of South Korea’s stock market far larger than that of other markets?

There are three main reasons: Samsung Electronics and SK Hynix together account for more than 50% of the KOSPI weight, so individual-stock volatility directly determines the direction of the broader market; leveraged ETFs for individual stocks launched in May 2026 create a negative feedback loop of “falling → passive de-risking → further falling”; and South Korea’s market has a high share of foreign capital, making it extremely sensitive to global fund flows.

Q: Why did Nvidia’s “circular financing” model raise market concerns?

Nvidia supports AI infrastructure development through investment and guarantees, but the investment targets are often also its chip customers. Critics believe this model has opaque financial structures and risks of related-party transactions, which could lead to “financial alchemy.” Nvidia’s five-year CDS spread surged by 14 basis points in a day to 82 basis points, reflecting credit-market worries about this model.

Q: What measures has the South Korean regulatory authority taken to address market volatility?

The Financial Services Commission of South Korea has announced the suspension of new listings of leveraged ETFs for individual stocks and raised the minimum margin requirement from 10 million won to 30 million won. On July 28—the day of the plunge—the FSC further said it is studying setting caps on the investment amounts of leveraged ETFs for individual investors.