S. Korean stocks plunge over 8% on AI profitability woes, Fed concerns

SEOUL, June 8 (Yonhap) -- South Korean stocks nosedived more than 8 percent Monday as investors dumped market heavyweights on renewed woes over artificial intelligence (AI) profitability and concerns over a possible hawkish pivot of the U.S. Federal Reserve. The local currency rose against the U.S. dollar after opening at a 17-year low.

The benchmark Korea Composite Stock Price Index (KOSPI) plunged 676.18 points, or 8.29 percent, to close at 7,484.41, after falling as low as 7,442.73.

The Monday crash was largely anticipated on sharp losses on Wall Street last week, fueled by semiconductor shares' biggest daily percentage drop since March 2020 and fears over a possible rate hike by the Fed sparked by a hotter-than-expected U.S. jobs report for May.

The Dow Jones Industrial Average closed 1.35 percent lower Friday (local time), while the S&P 500 dipped 2.64 percent and the tech-heavy Nasdaq composite slid 4.18 percent.

Major U.S. chip shares sharply lost ground, with Nvidia slumping 6.2 percent, Broadcom contracting 7.92 percent and Micron shooting down 13.25 percent.

The Korea Exchange (KRX) had activated a circuit breaker for the KOSPI about three minutes after opening, halting trading for 20 minutes, and implemented a consecutive sell-side sidecar at around 9:34 a.m.

The KRX had also issued a sell-side sidecar for the secondary KOSDAQ market about six minutes after opening, suspending trading for five minutes, and activated a circuit breaker for the index later in the day after the KOSDAQ fell by more than 8 percent.

"Today's pullback appears to be driven not by the weakening of market fundamentals, but by profit-taking sentiment among investors, mainly targeted at the semiconductor sector, as the market reacted more sensitively to negative developments after an extended rally of chip shares," a report by Samsung Securities said.

The KOSPI has been one of the best performing stock indexes across the world in recent months, surging to above the landmark 8,000-point level late last month from the 5,000-point level earlier this year, mainly driven by major semiconductor shares, including Samsung Electronics and SK hynix.

"There is a lot at stake in this week's financial market, with U.S. inflation data, treasury yields and the ongoing debate over the sustainability of artificial intelligence-related investment all unfolding simultaneously," said Seo Sang-young, an analyst at Mirae Asset Securities.

Han Ji-young, a researcher at Kiwoom Securities, also anticipated a "challenging" week for the KOSPI, noting that the release of the U.S. Consumer Price Index for May, the SpaceX listing and Oracle's earnings results planned for this week may weigh on the market.

Market analysts also said news that Iran and Israel traded strikes dampened investors' risk appetite, dimming hopes for peace in the Middle East.

The Korean won was quoted at 1,535.0 won against the U.S. dollar at 3:30 p.m., up 4.1 won from the previous session, after opening at 1,555.2 won, the lowest mark since March 6, 2009, when the global markets were in a financial crisis.