Kospi crashes another 5%, now down 40% from peak
What's the story
South Korea's benchmark KOSPI index has witnessed another crash, falling by 5%. The fall comes as a result of a chip-led sell-off in artificial intelligence (AI) stocks. The decline has cut its 2026 gains to about 30% from roughly 116% at its record close in June. The index is now trading nearly 39% below its peak value earlier this year.
Market impact
Global sell-off in AI-linked stocks
The latest decline in the KOSPI index comes after a global sell-off in AI-linked stocks.
The sell-off last week erased over $1 trillion in market value from 20 of the world's most valuable AI and semiconductor companies.
South Korea, with its heavy reliance on memory chipmakers Samsung Electronics and SK Hynix, has been especially vulnerable to this trend.
Financial worries
Concerns over credit risks due to heavy AI spending
The sell-off has been fueled by investor concerns over credit risks linked to heavy AI spending.
Broadcom CEO Hock Tan warned capital could become a bigger constraint on AI expansion than semiconductor shortages.
Intel CEO Lip-Bu Tan echoed this concern, highlighting rising capital costs and the need for companies heavily investing in AI to show adequate returns.
Diversification advice
Jefferies advises investors to diversify beyond AI
The debate over AI valuations has led some experts to advise investors to look beyond the sector.
Jefferies' Global Head of Equity Strategy Chris Wood, in his latest Greed & Fear note, highlighted a warning from the firm's global quantitative strategy team that "it has become time to diversify beyond AI."
The report predicts a slowdown in earnings growth for global AI stocks from nearly 100% in 2026 to 30% in 2027 and 22% in 2028.