South Korea's KOSPI drops 10% as AI chip selloff deepens on Nvidia financing fears and China competition

Seoul trading halted

South Korea's benchmark KOSPI index dropped about 10% on Tuesday morning, triggering a 20-minute trading halt after an 8% decline activated the exchange's circuit breaker. The Korea Exchange also imposed "sidecar" curbs on both the KOSPI and the junior Kosdaq index, temporarily suspending programme trading. Samsung Electronics and SK Hynix slid as much as 13.4% and 14%, respectively; together they account for more than half of the KOSPI's weighting. The index has been halted eight times this year, having more than doubled from January to mid-June before losing roughly a third of its value.

We seem to be at the despair part of the selloff, where tech investors are rushing for the exit because the Nasdaq says so. But right now the KOSPI is setting the tone for sentiment in Asia, and it looks ugly.

Nvidia financing fears

The rout was set in motion on Monday when Nvidia shares fell 5% after the Wall Street Journal reported the company is in talks to provide around $250 billion in financing guarantees for an OpenAI data centre. The report also said financing for OpenAI chip purchases worth up to $350 billion was under discussion, raising questions about the circular nature of AI infrastructure spending. Nvidia lost its position as the world's most valuable listed company to Apple. SK Hynix's US-listed shares closed 7.5% lower overnight at $143.02, below their $149 initial public offering price from the 9 July Nasdaq debut.

Chinese competition intensifies

Chinese memory-chip maker ChangXin Memory Technologies (CXMT) made a blockbuster stock-market debut on Monday, rocketing to the top of China's market by valuation and fuelling concerns about intensifying competition. Separately, reports that a Chinese state-backed firm has begun producing domestically developed immersion deep ultraviolet (DUV) lithography equipment sent ASML shares down 8.5%. The growing popularity of low-cost Chinese open-source AI models such as Kimi K3 added to worries that future AI workloads may require less advanced chips. Apple had been lobbying the Trump administration to allow the use of Chinese-made chips in some products, further unsettling investors.

The market's concern lies less in CXMT's current earnings and more in its potential for accelerated capacity expansion to rival Korean companies and technology development following its IPO.

Regional spillover

Japan's Nikkei 225 fell 4.5%, with flash memory maker Kioxia Holdings slumping nearly 18% and Taiwanese chip designer MediaTek dropping more than 9%. The selloff rippled across Asia even as oil prices extended losses and bonds held steady. Markets priced a 38% chance of a US rate hike this week.

What's next

Investors are looking to earnings from Apple, Meta, Microsoft and Amazon later this week for signals on hyperscaler spending plans. Han Ji-young, an analyst at Kiwoom Securities, noted that even stronger-than-expected results from Samsung Electronics and Alphabet had failed to lift semiconductor shares recently.

Despite stronger-than-expected earnings from Samsung Electronics earlier this month and Alphabet last week, semiconductor shares experienced sharp declines after the results.