"Black Tuesday" in Japan and South Korea Stock Markets: KOSPI Circuit Breaker, Nikkei Plunges, AI Hype Faces Interim Correction

Original | Odaily Planet Daily (@OdailyChina)

Author | 秦晓峰 (@QinXiaofeng 888 )

Today, Asian stock markets experienced severe turbulence.

The Korea Composite Stock Price Index (KOSPI) plummeted over 8% during trading, triggering a circuit breaker mechanism and suspending trading for 20 minutes. It eventually closed down nearly 10% at 8203.84 points, recording the third-largest single-day drop this year. The Japanese stock market also came under pressure, with the Nikkei 225 index falling about 3.5% to close near 69,788 points, ending an eight-day winning streak; the TOPIX index fell about 2.6%.

This correction was concentrated in technology, especially semiconductor stocks. Heavily weighted stocks like Samsung Electronics and SK Hynix led the decline, dragging down the entire market. Foreign investors accelerated selling, trading volume surged, and panic in the market notably intensified.

Since June, both the Japanese and Korean stock markets have experienced frequent sharp fluctuations. The KOSPI has triggered circuit breakers four times this year. Previously driven by the AI and semiconductor boom, the KOSPI had approached a historic high of 9385 points; the Nikkei 225 also briefly stood above 70,000 points. In just a few weeks, the shift from historic highs to a significant pullback highlights market fragility and profit-taking pressure. Odaily Planet Daily will analyze this from three aspects: market performance, underlying causes, and future outlook.

I. Market Plunge: From Historic Highs to Circuit Breaker Alarms

Opening on June 23, the KOSPI started high at 9083.54 points and briefly surged to 9175.45 points during the session. However, driven by foreign selling and follow-on sell orders, the index rapidly declined. Around 2:33 PM, the drop exceeded 8%, triggering the circuit breaker mechanism of the Korea Exchange (KRX), suspending trading in all KOSPI component stocks for 20 minutes. Similar mechanisms had already been activated on multiple days like June 5 and 8, indicating that volatility has become the norm.

At the close, the KOSPI stood at 8203.84 points, a single-day drop of 9.99%, with trading volume surging to 48.371 billion shares. Semiconductor giants like SK Hynix and Samsung Electronics led the decline, both falling over 12%. The KOSDAQ index proved even more fragile, concurrently plummeting over 6%, with small-cap tech stocks tumbling collectively. Net selling by foreign investors was significant, becoming the main source of selling pressure.

The Japanese market reaction was relatively milder but still noteworthy. The Nikkei 225 index fell over 3% during the session, closing around 69,788 points for a single-day drop of about 3.47%, with the TOPIX index also retreating. Technology and semiconductor-related stocks performed the worst: SoftBank Group fell over 10%, chipmaker Kioxia plunged 15.1%, and Tokyo Electron fell 6.2%. The broad correction in AI and semiconductor sectors, which had previously driven the Nikkei's surge, ended an eight-session winning streak.

Compared to recent highs, the magnitude of this pullback is staggering. The KOSPI has fallen over 12% from its mid-June peak, and the Nikkei 225 has significantly corrected from above the 70,000-point level.

Global market correlations were evident. US tech stocks came under pressure overnight, with the Nasdaq falling over 1% and the S&P 500 edging lower. Rotation within the "Magnificent Seven" saw stocks like Amazon and Meta lead the decline. Other Asian markets, such as Taiwan, were also affected, creating a regional sell-off in technology stocks.

Overall, this was a rapid and severe correction led by the technology sector, with the Korean stock market, given its high concentration, falling far more than the Japanese market.

II. Cause Analysis: Phase Rupture of the AI Bubble Under Multiple Factors

The sharp declines in the Japanese and Korean stock markets are the result of multiple converging factors, which can be analyzed from the perspectives of direct triggers, macroeconomic policy pressures, and structural risks.

1. Direct Triggers: Overnight Weakness in US Tech Stocks and Profit-Taking Pressure

A notable correction in the US technology sector in the previous trading session directly transmitted to Asian markets. The Nasdaq fell over 1.2%, with significant rotation within the Magnificent Seven, putting pressure on some individual stocks.

Lisa Shalett, CIO of Morgan Stanley Wealth Management, pointed out: "Rotation within the Magnificent Seven is evident, and news of resignations by some executives or researchers has heightened concerns about the pace of AI commercialization. Investors are starting to demand more evidence that massive AI capital expenditure can translate into sustainable profits."

This concern quickly spread to the Japanese and Korean markets, which are heavily dependent on the global AI supply chain. Korea's semiconductor exports consistently account for over 20% of its total exports. Samsung Electronics and SK Hynix together constitute about 40% of the KOSPI's weight. On June 23, these two giants fell approximately 8%-12% respectively, directly dragging down the index.

Furthermore, the Japanese and Korean stock markets had accumulated substantial gains since June, resulting in very rich unrealized profits. The KOSPI surged from around 5000 points at the start of the year to over 9000 points by mid-June, with a maximum year-to-date gain exceeding 80%. The Nikkei 225 also rose from around 40,000 points at the start of the year to above 70,000 points, hitting an all-time high. Valuations were high (the KOSPI's forward P/E ratio approached historical highs), making any negative catalyst likely to trigger profit-taking. The concentrated selling on June 23 was a natural correction following an excessively rapid rally.

2. Macroeconomic and Policy Factors: Rising Fed Rate Hike Expectations and Economic Data Impact

The latest strong US employment data further boosted expectations that the Federal Reserve will maintain high interest rates or even raise them further. According to Reuters, non-farm payrolls increased by 172,000 in May, far exceeding economists' expectations of 85,000, while the unemployment rate remained stable at 4.3%. This data prompted some institutions (like Goldman Sachs) to delay their first rate cut expectations to 2027. More critically, the Fed's FOMC meeting on June 16-17 decided to keep the federal funds rate unchanged in the 3.5%-3.75% range. The meeting statement emphasized robust economic expansion, but rising uncertainties due to the Middle East conflict, with inflation still above the 2% target.

The Fed's latest dot plot released a clear hawkish signal: the median forecast for the federal funds rate at the end of 2026 was raised to 3.8% (a significant increase of 0.4 percentage points from the 3.4% forecast in March), suggesting at least one rate hike possible within the year. Simultaneously, the FOMC raised its 2026 inflation forecasts: the median core PCE inflation forecast rose to 3.3%, and overall PCE to 3.6% (both previously around 2.7%); GDP growth forecast was slightly lowered to 2.2%.

Rate-sensitive growth stocks, especially technology and semiconductors, bore the brunt of this. The Korean stock market, previously considered a typical "high-beta" asset due to the AI frenzy, is extremely sensitive to changes in global liquidity. The Japanese market was also constrained by global liquidity expectations, although improvements in domestic wage growth data provided some support.

A series of macro signals significantly pushed up US Treasury yields and suppressed global risk assets, directly exacerbating selling pressure on Japanese and Korean tech stocks.

3. Structural Risks: High Market Concentration and Foreign Capital Outflow

The structural vulnerability of the Korean stock market is particularly prominent. The KOSPI is heavily reliant on two major semiconductor giants, Samsung Electronics and SK Hynix. Any fluctuation in the semiconductor cycle or global AI demand causes violent swings in the index.

Continuous outflow of foreign capital is another key factor. Foreign investors, having reaped substantial profits during the earlier rally, have frequently been net sellers since June, particularly in the Korean market, with some funds likely rotating into US IPOs (like SpaceX) or other assets. On June 23, net selling by foreign investors increased significantly, becoming the primary source of selling pressure.

In comparison, while the Japanese market was also dragged down by tech stocks, its sector diversification is relatively higher, limiting the Nikkei 225's decline to around 3.5%.

Additionally, company-specific developments exacerbated market pressure. According to market sources, SK Hynix recently adjusted its memory capacity allocation for AI chips (especially HBM), shifting some production lines towards higher-margin traditional DRAM to optimize short-term profitability. This move raised investor concerns about the short-term supply-demand balance for HBM, triggering selling.

III. Future Outlook: Short-term Volatility Inevitable, Long-term AI Narrative Remains Resilient

Looking ahead, the Japanese and Korean stock markets are expected to feature "volatile bottoming and structural divergence." Short-term market volatility will remain high, but medium-to-long-term fundamental support persists, and the pullback provides a window for allocating to quality assets.

Short-term Volatility Domination, Recovery Depends on US Stocks and Fed Signals
In the short term, the market remains in a period of high volatility adjustment. The performance of US tech stocks is a key barometer. If the Nasdaq stabilizes or experiences a technical rebound, the Japanese and Korean markets are likely to follow with a recovery. Conversely, if the Fed releases further hawkish signals or second-quarter earnings reports from Japanese and Korean companies disappoint, the correction could extend or deepen. Key events to watch include:

• US inflation data (CPI/PCE) and employment data for June-July;
• The next FOMC meeting (July);
• Second-quarter earnings reports from major stocks like Samsung Electronics, SK Hynix, and Tokyo Electron.

Strong Medium-to-Long Term Fundamentals, Pullbacks Present Opportunities
Global AI capital expenditure continues to grow rapidly, and the underlying logic of the semiconductor supercycle remains unchanged. According to forecasts from institutions like Goldman Sachs, global AI-related capital expenditure (computing, data centers, power) from 2026 to 2031 will total approximately $7.6 trillion. AI CapEx alone is expected to be close to $765 billion in 2026, subsequently rising year by year to $1.6 trillion by 2031. New data center capacity additions are expected to reach nearly 100GW from 2026 to 2030, with a total investment scale potentially reaching $3 trillion.

Korea maintains a strong leading position in HBM (High Bandwidth Memory) and advanced process technology. SK Hynix's HBM market share has consistently remained between 50% and 62%, and in the HBM4 era, its supply share for the NVIDIA Rubin platform could reach around 70%. Samsung Electronics is also accelerating capacity expansion, planning to increase HBM production capacity by about 50% in 2026. Long-term orders for these two giants are largely secured until 2027, indicating that the AI memory demand supercycle is still in its early stages.

From a long-term perspective, AI remains a transformative productivity tool. Periodic adjustments are unlikely to reverse the major trend of technological progress. Just like corrections after every past technology bubble, they ultimately leave generous rewards for true infrastructure builders and innovators. This "Black Tuesday" could mark a turning point where AI investment moves from frenzy to rationality, from concept to industry. The resilience and potential of the Japanese and Korean stock markets remain worthy of expectation.