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Korean Stocks Plunge, Triggering a Circuit Breaker—“Two Memory Giants” Take a Heavy Hit! What Are the Forces Behind It?

　South Korean stocks fell sharply on Wednesday, triggering the circuit breaker mechanism. Affected by the overnight plunge in US semiconductor stocks, South Korea’s “two memory giants” led the broader market lower. As prospects for US-Iran peace grew dimmer, rising bond yields and oil prices pressured tech stocks, denting investor sentiment.

　The Korea Composite Stock Price Index (KOSPI) opened down 4.96% and, as of press time, was down 4.09% at 6589.17 points. Its intraday decline at one point widened to nearly 7%.

　At around 08:07 Beijing time, the Korea Exchange activated the “sidecar mechanism” for the KOSPI index, suspending program trading sell orders for 5 minutes. The mechanism is triggered when the KOSPI200 futures index falls by more than 5% and remains at that level for over 1 minute.

　Among heavyweight stocks, as of press time, SK hynix was down nearly 7%, after falling nearly 10% intraday, while Samsung Electronics was down nearly 6%, after at one point falling more than 8%.

　What are the forces behind it?

　Overnight, as AI stocks led by chip stocks plunged, all three major US stock indexes fell. Panic spread to the South Korean market.

　At the close, the S&P 500 fell 0.69% to 7691.76 points; the Nasdaq Composite fell 1.33% to 26289.71 points; and the Dow Jones Industrial Average fell 0.22% to 53343.4 points.

　Semiconductor, memory, and optical communications stocks collectively plunged, with the Philadelphia Semiconductor Index closing down sharply by 5%. Notably, the Philadelphia Semiconductor Index had only just reentered a technical bull market on Monday, highlighting the continued vulnerability of the chip sector.

　The latest turmoil in the Middle East conflict pushed oil prices higher and weighed on market sentiment. Markets are concerned that elevated energy prices could keep inflation high.

　According to reports from CCTV News and other media, a US official said on the 18th that US President Donald Trump had asked senior government envoys to suspend contact with Iran. Trump also claimed that day that he had not held any talks with Iran and had no plans to do so in the future.

　Meanwhile, panic over a global sell-off in long-term bonds began to spill over. On August 18, 20-year government bond yields in the US, Japan, France, and several other countries had all surged to their highest levels in nearly 20 years.

　Rising bond yields intensified investors’ concerns over large tech companies’ heavy borrowing. Some analysts pointed out that market concerns over debt financing for AI in US stocks are continuing to intensify, with investors beginning to price in the debt risks of AI capital expenditures.

　As AI infrastructure construction fuels corporate borrowing, US investment-grade bond issuance has set a record high for the same month of the year for the third consecutive month. According to data compiled by media outlets, as of Monday (August 17), cumulative US investment-grade bond issuance in August had reached $145.2 billion, surpassing the previous record of $136 billion for the same month, set in August 2020.

　At present, the investment threshold for financing tech infrastructure continues to rise, forcing large data center projects to offer higher yields to secure sufficient funds in the bond market.

　Meanwhile, the disappointing financial performance of leading AI model companies has also heightened investors’ concerns to some extent over the outlook for chip demand.

　Citing people familiar with the matter, media reports said that ChatGPT developer OpenAI’s second-quarter revenue rose 18% quarter-on-quarter, but its losses widened further. OpenAI disclosed to investors that its revenue reached $6.7 billion in the three months ended June, up from $5.7 billion in the first quarter.

　In the second quarter, OpenAI’s operating loss, including stock-based compensation, widened from $9.3 billion in the first quarter to $12.3 billion. With losses growing faster than revenue, the company is moving increasingly further away from its profitability target.$SKHY