The AI rally that lifted South Korea's markets is now facing its toughest reality check.
SEOUL: South Korea’s benchmark Kospi index collapsed 5.6% on Monday to close at 7,060.69 points, triggering the country’s seventh market-wide circuit breaker of the year after intraday losses briefly exceeded 8%. The rout was driven by a combination of fresh Iranian strikes on the Strait of Hormuz over the weekend and a disappointing earnings preview from SK Hynix, the chipmaker whose dominance in AI memory had propelled the Kospi to become the world’s best-performing major index this year, even as it now sits nearly 27% below its June peak.
A Rally Built on One Bet, Now Unwinding
To understand why Monday’s crash felt so severe, it helps to look at how extraordinary the preceding rally actually was. The Kospi stood at just over 4,000 points last November. By June it had crossed 9,300, a gain of roughly 90% in under eight months, almost entirely on the back of two companies. SK Hynix and Samsung Electronics together make up close to half the index and SK Hynix in particular became the primary global supplier of high-bandwidth memory chips that power Nvidia’s AI accelerators, commanding gross margins near 79% at the height of the boom. That kind of concentration works beautifully on the way up. It becomes a serious liability the moment sentiment turns, since the entire market effectively becomes a leveraged bet on one company’s ability to keep beating expectations quarter after quarter.
Two Shocks Arrived at the Same Time
Monday’s selloff wasn’t caused by a single event so much as two separate problems colliding at once. On the geopolitical side, Iran’s Revolutionary Guard Corps announced a fresh blockade of the Strait of Hormuz over the weekend, prompting immediate US airstrikes on Iranian coastal targets and retaliatory missile attacks against American bases across the Gulf. Since the Strait carries roughly a fifth of the world’s daily oil supply, Brent crude jumped past $79 a barrel almost instantly, reigniting fears of exactly the kind of inflation that keeps central banks from cutting rates. On the corporate side, a same-day earnings preview from Korea Investment & Securities projected SK Hynix’s upcoming quarterly profit would fall about 8% short of what the market had priced in, largely because shipments of its next-generation HBM4 chips are ramping up slower than investors had assumed. Coming just three days after SK Hynix’s own record-breaking $26.5 billion Nasdaq listing, that miss landed particularly hard, with the stock sliding more than 10% on the day.
Why This Matters Beyond Seoul
The deeper story here is what this reveals about the AI hardware trade more broadly, not just about one Korean company. Markets had been pricing in something close to flawless execution from SK Hynix and its hyperscaler customers indefinitely. That was always going to be a fragile assumption and Monday’s price action suggests investors are beginning to question it. Compounding the concern, both Samsung and Micron have been racing to expand their own HBM capacity, while China’s memory maker CXMT is ramping up output as well. If all that new supply lands around the same time, the extraordinary margins that fueled this year’s rally could compress fairly quickly, turning what looked like a structural shift into a more familiar boom-and-bust memory cycle.
India Felt the Tremor, But Differently
Indian markets opened lower in sympathy, with the Nifty 50 slipping below the psychologically important 24,000 level and the rupee weakening past 95.89 to the dollar as rising oil prices stoked familiar worries about the trade deficit. What stood out though, was how India’s IT sector actually behaved. While Korean chipmakers cratered, the Nifty IT index moved higher during the same session, a genuine divergence worth noting. Part of that comes down to valuation, since Indian IT stocks have already spent much of this year correcting sharply and now look comparatively inexpensive. Part of it is currency mechanics too, since a weaker rupee is a direct tailwind for exporters who earn in dollars and pay costs in rupees. Tata Consultancy Services had already set a reassuring tone with its results on July 9, reporting healthy profit growth and a rising AI revenue run rate and HCL Technologies was scheduled to report its own numbers Monday evening, offering the next real test of whether that resilience holds.
What to Watch This Week
The path forward likely hinges on how quickly, if at all the Hormuz situation de-escalates, since a prolonged blockade would keep both oil prices and market anxiety elevated. South Korea’s central bank is also expected to raise interest rates at its meeting later this week to counter rising inflation, adding another variable investors will be watching closely. For now, the sharp reversal in Seoul serves as a pointed reminder that even the most celebrated trades of the year remain vulnerable to shocks nobody can fully price in advance.
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