Kospi plunges 6.8% as rising bond yields hit chip stocks

The Kospi fell as much as 6.8% intraday on Aug. 19 as rising global bond yields stoked concern that higher borrowing costs would weigh on Big Tech's AI investment burden.

"The long-term outlook for AI growth remains valid, but investors are no longer willing to pay the same premium for AI growth as before because of high interest rates and geopolitical risks," Jung In-yoon, global chief executive officer at Fibonacci Asset Management, said. He added that profit-taking after a recent strong rally deepened the losses.

Samsung Electronics and SK Hynix, two of the index's biggest components, each tumbled more than 8%, dragging the benchmark lower. The Kospi opened at 6,528.77, down 341.06 points, or 4.96%, and fell as low as 6,400.81 before paring some of the decline. Samsung traded at 249,000 won, down 7.26%, while SK Hynix stood at 1,508,000 won, down 9.27%. The slide spread across the board, with SK Square down 11.81%, Samsung Electro-Mechanics down 4.51%, Hyundai Motor down 5.98% and LG Energy Solution down 2.14%. Foreign investors sold a net 1.068 trillion won ($790 million) early in the session, while retail investors bought a net 1.2645 trillion won ($935 million). The decline triggered a Kospi sell-side sidecar, the 48th in the market this year and the 25th on the sell side.

The selloff extended beyond South Korea. The Bloomberg Asia Semiconductor Index fell 3.2%, Japan's Kioxia Holdings dropped as much as 11% intraday, and Taiwan's TSMC lost about 2%. Japan's Nikkei fell about 2.1%. The weakness followed a decline in U.S. semiconductor and AI-related shares a day earlier.

Rising U.S. Treasury yields drove the decline. The yield on the 30-year Treasury climbed as high as 5.33% during the session, its highest level in 19 years, while the 10-year yield reached 4.728%. Elevated yields raise funding costs for hyperscalers that have sustained large-scale investment in AI infrastructure, including data centers and semiconductors. Recent earnings confirmed Big Tech AI investment remains firm, but investors worry persistently high borrowing costs could limit further expansion over the long term.

Geopolitical risk compounded the pressure. The expiration of a temporary U.S.-Iran ceasefire pushed Brent crude above $91 a barrel, reviving concern that higher Middle East energy prices could intensify inflation and keep global bond yields elevated for longer. Andrew Jackson, head of Japan equity strategy at Ortus Advisors, said AI stocks had run into another obstacle just as they had started to build momentum for a rebound, with doubts growing over the massive debt loads carried by hyperscalers as long-term borrowing costs remain elevated.

This article is for informational purposes only and does not constitute investment advice.