KOSPI Drops 3.26% as AI Spending Concerns, Oil Prices, and Rate Hikes Hit Tech

SEOUL — South Korea's benchmark KOSPI index tumbled 3.26% on Monday, marking its third consecutive session of losses as a combination of rising U.S. interest rate expectations, surging oil prices and fresh doubts about the pace of artificial intelligence spending hit the country's heavyweight technology stocks hard.The KOSPI closed at 6,684.37, down 225.54 points from the previous session, according to the Korea Exchange. The index opened sharply lower at 6,692.61, down 3.14%, and briefly clawed back some losses during the session before selling resumed and pushed the index to an intraday low of 6,654.82, a decline of as much as 3.69% at its worst point. The tech-heavy KOSDAQ index also fell, closing at 806.79, down 13.85 points, or 1.69%.The selloff was driven in large part by renewed jitters over the outlook for artificial intelligence spending, which weighed heavily on South Korea's dominant chipmakers. Samsung Electronics shares dropped 3.76%, while rival SK Hynix fell 5.30%. SK Square, a major investor in SK Hynix, tumbled 7%. The declines came even as Samsung unveiled its next-generation HBM4 memory chip on the same day, an announcement aimed at reinforcing the company's position in the artificial intelligence accelerator market, underscoring how broader macroeconomic concerns overshadowed company-specific developments.Compounding the pressure on risk sentiment, oil prices climbed above $108 a barrel amid stalled diplomatic talks tied to tensions in the Middle East, adding to cost concerns for import-heavy South Korea, one of the world's largest crude importers. At the same time, a hotter-than-expected U.S. core consumer price index reading raised expectations that the Federal Reserve will move forward with an interest rate increase, with futures markets pricing in an 86% probability of a hike at this month's Federal Open Market Committee meeting.Selling was broad-based across foreign and institutional investors, who both took a net-selling stance in major sectors during the session. In the electrical and electronics sector alone, foreign investors net sold approximately 114.6 billion won, while institutional investors net sold about 59.4 billion won. The manufacturing sector saw even heavier outflows, with foreign investors net selling roughly 193.7 billion won and institutional investors net selling about 108.2 billion won, adding further downward pressure to the broader index.Despite the across-the-board weakness in equities, the day's trading also spotlighted a separate market dynamic: a rapidly strengthening Korean won. The won's swift appreciation against the U.S. dollar has drawn attention to sectors seen as beneficiaries of currency strength, particularly food and beverage companies, banks and airlines. Airlines in particular pay a substantial share of their major expenses, including fuel costs, aircraft leasing fees and interest on foreign currency-denominated debt, in U.S. dollars, meaning a stronger won directly reduces those costs. A stronger won can also boost outbound travel demand among South Korean consumers, creating additional tailwinds for the sector.Je-Hyun Ryu, a researcher at Mirae Asset Securities, pointed to that dynamic as a reason certain stocks bucked the broader market decline. "When the won strengthens, airlines experience alleviated cost pressures and improved passenger demand," Ryu said. Reflecting that trend, shares of Korean Air Lines and Asiana Airlines posted slight gains even as the broader KOSPI fell more than 3% on the day.Monday's decline extended a losing streak for the KOSPI, which has now fallen for three consecutive sessions as investors weigh a mounting list of macroeconomic headwinds. The combination of elevated oil prices, geopolitical uncertainty in the Middle East and shifting expectations around U.S. monetary policy has increasingly pressured risk assets globally, with South Korea's heavy reliance on semiconductor exports and energy imports leaving its market particularly exposed to swings in both crude prices and global tech sentiment.The renewed skepticism toward artificial intelligence spending has emerged as a significant overhang for South Korean markets in recent sessions, given the outsized weighting of Samsung Electronics and SK Hynix within the KOSPI index. Both companies have benefited enormously from the global boom in AI infrastructure investment over the past several years, with demand for high-bandwidth memory chips used in AI accelerators driving substantial revenue growth. Any sign that the pace of that spending could slow, even if only in market commentary rather than confirmed corporate guidance, has proven capable of triggering sharp pullbacks in the two companies' shares given how closely their valuations have become tied to continued AI-related demand.Despite Monday's sharp losses, some market participants noted that bargain hunters stepped in during the session, temporarily lifting the index off its lows before renewed selling pressure emerged again into the close. That pattern of intraday volatility, sharp early declines followed by partial recoveries and then renewed weakness, has become increasingly common in recent sessions as investors struggle to find a clear direction amid the competing crosscurrents of rate policy uncertainty, geopolitical risk and shifting sentiment on the durability of the AI investment cycle.Elsewhere in South Korean corporate news on the same day, automaker Hyundai and steelmaker POSCO broke ground on a $5.8 billion steel mill in the United States, a reminder that longer-term corporate investment decisions have continued to move forward even as short-term market sentiment remains volatile.With the Federal Reserve's policy decision looming and oil prices remaining elevated amid unresolved Middle East tensions, investors are likely to remain focused in the coming sessions on whether South Korea's chip giants can stabilize after Monday's steep declines, and whether the currency-driven rotation into airlines, banks and consumer names proves durable or merely a temporary offset within a broader market downturn.