South Korea's benchmark KOSPI index has entered a technical bear market after falling around 20 percent from its recent record high, as investors shifted money away from expensive AI-linked chip stocks and moved into cheaper Chinese technology companies.
The sharp fall comes after KOSPI had emerged as the world's best-performing major stock market earlier this year, driven by strong gains in semiconductor companies benefiting from the artificial intelligence (AI) boom.
Chip Stocks Under Pressure
The KOSPI declined as much as 6.1 percent during the session, taking its fall from last month's peak to nearly 20 percent, which is widely considered a technical bear market.
Leading chipmakers such as SK Hynix and Samsung Electronics witnessed sharp selling despite reporting strong business performance. Investors are becoming cautious over whether the massive spending on AI infrastructure can continue at the same pace in the coming years.
Experts believe markets are now questioning whether future earnings growth will be strong enough to justify the sharp rise in chip stock valuations.
China Tech Stocks Gain
While South Korean shares declined, Chinese technology stocks attracted fresh buying.
Shares of Alibaba surged more than 10%, while Tencent gained over 4% as investors looked for better value in Chinese companies after a long period of underperformance.
The Hang Seng China Enterprises Index climbed as much as 3.8%, recording its biggest single-day gain since April 2025.
Rotation to Cheaper Markets
According to experts, the AI investment theme remains strong, but investors are gradually rotating from high-priced semiconductor stocks to markets that offer lower valuations and higher recovery potential.
They also noted that global AI spending is currently supported by only a few large technology companies, making the sector vulnerable if investment plans slow in the future.
Although KOSPI has corrected sharply, it still remains one of the world's best-performing stock indices this year after posting massive gains earlier in the year.
Meanwhile, Hong Kong's technology benchmarks are still down for the year despite the latest rally, reflecting continued concerns over China's economic recovery. However, experts believe the recent weakness has created attractive investment opportunities in several large Chinese technology companies.
