Original | Odaily Planet Daily (@OdailyChina）

Author | Qin Xiaofeng (@QinXiaofeng888）

Today, Asian stock markets experienced sharp fluctuations.

The Korea Composite Stock Price Index (KOSPI) plummeted over 8% during the trading session, triggering the market's circuit breaker mechanism, leading to a 20-minute trading halt; ultimately closing down nearly 10% at 8203.84 points, marking the third largest single-day drop this year. The Japanese stock market also faced pressure, with the Nikkei 225 index dropping about 3.5%, closing near 69788 points, ending an eight-day winning streak; the TOPIX index fell about 2.6%.

This adjustment has hit the technology stocks particularly hard, especially the semiconductor sector, with major stocks like Samsung Electronics and SK Hynix leading the decline, dragging down the entire market. Foreign capital accelerated selling, and trading volume surged significantly, with clear signs of panic in the market.

Since June, the stock markets in Japan and South Korea have seen multiple instances of violent fluctuations, with the KOSPI triggering circuit breakers four times this year. Previously, the KOSPI approached the historical high of 9385 points due to the AI and semiconductor boom; the Nikkei 225 also briefly surpassed 70,000 points. In just a few weeks, from a historical high to a significant pullback, the market's fragility and profit-taking pressure have become evident. Odaily Planet Daily will analyze the market performance, underlying reasons, and future trends.

1. Market Crash: From Historical Highs to Circuit Breaker Alerts

On June 23, the KOSPI opened high at 9083.54 points, briefly reaching 9175.45 points during the session. However, subsequent selling pressure from foreign capital and follow-up sell-offs caused the index to plunge rapidly. Around 14:33 in the afternoon, a drop of more than 8% triggered the circuit breaker mechanism on the Korea Exchange (KRX), halting trading of all KOSPI constituent stocks for 20 minutes. Similar mechanisms had been triggered on several days such as June 5 and 8, indicating that volatility has become a norm.

At closing, the KOSPI stood at 8203.84 points, with a single-day decline of 9.99%, and trading volume surged to 48.371 billion shares. Semiconductor giants SK Hynix and Samsung Electronics led the declines, each dropping over 12%. The Korea Securities Dealers Automated Quotations (KOSDAQ) index showed even greater weakness, falling over 6% in tandem, with small-cap tech stocks collectively declining. Foreign investors' net selling scale was notably significant, becoming a major source of selling pressure.

The Japanese market reacted relatively mildly but should not be overlooked. The Nikkei 225 index briefly fell over 3%, closing around 69788 points, with a single-day decline of about 3.47%, while the TOPIX index also retreated. Technology and semiconductor-related stocks performed the worst: SoftBank Group fell over 10%, chip manufacturer Kioxia plummeted 15.1%, and Tokyo Electron dropped 6.2%. The sectors that previously drove the Nikkei's rise, namely AI and semiconductors, underwent a comprehensive pullback, ending an eight-day consecutive rise.

Compared to recent highs, the magnitude of this adjustment is astonishing. The KOSPI has retreated over 12% from its mid-June peak, and the Nikkei 225 has notably corrected from above 70,000 points.

Global market correlations are evident, with U.S. tech stocks under pressure overnight; the Nasdaq index fell over 1%, and the S&P 500 edged lower, experiencing rotation among the “Magnificent Seven,” with stocks like Amazon and Meta leading declines; other Asian markets, such as the Taiwan stock market, were also affected, resulting in a regional tech stock sell-off.

Overall, this is a quick and severe adjustment led by the technology sector, with South Korean stocks declining much more significantly than Japanese stocks due to their concentration risk.

2. Cause Analysis: Multiple Factors Leading to a Phase of AI Bubble Burst

The significant drop in the Japanese and South Korean stock markets is the result of multiple factors working together, which can be analyzed from dimensions such as direct causes, macro policy pressures, and structural risks.

1. Direct Cause: Weakness in U.S. Tech Stocks Overnight and Profit-Taking Pressure

Tech stocks in the U.S. market showed a clear pullback in the previous trading session, directly transmitting to the Asian markets. The Nasdaq index fell over 1.2%, with notable rotation within the Magnificent Seven, causing significant pressure on certain stocks.

Lisa Shalett, Chief Investment Officer of Morgan Stanley Wealth Management, pointed out: “The rotation within the Magnificent Seven is obvious; news of some executives or researchers leaving has intensified market concerns about the commercialization timeline of AI. Investors are beginning to demand more evidence that large AI capital expenditures can translate into sustainable profits.”

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

Additionally, since June, the Japanese and South Korean stock markets have experienced significant rallies, resulting in substantial profit-taking. The KOSPI index surged from around 5000 points at the beginning of the year to over 9000 points in mid-June, with a maximum annual gain exceeding 80%; the Nikkei 225 index also rose from around 40,000 points at the beginning of the year to over 70,000 points, setting a historic high. Valuations are at high levels (the KOSPI's dynamic price-to-earnings ratio nearly approached a historical peak), making any negative catalyst likely to trigger profit-taking. The concentrated selling on June 23 was a natural correction after prior rapid price increases.

2. Macro and Policy Factors: Rising Expectations of Fed Rate Hikes and Economic Data Impact

Recent strong U.S. employment data further heightened market expectations for the Fed to maintain high interest rates or even raise them. According to Reuters, the non-farm payrolls in May increased by 172,000, significantly exceeding economists' expectations of 85,000, with the unemployment rate stable at 4.3%. This data prompted certain institutions (like Goldman Sachs) to delay expectations for the first rate cut until 2027. More crucially, the June 16-17 FOMC meeting of the Fed decided to maintain the federal funds rate in the range of 3.5%-3.75%. The meeting statement emphasized solid economic expansion but noted rising uncertainties from the Middle East conflict, with inflation still above the 2% target.

The Fed's latest dot plot released clear hawkish signals: the median forecast for the federal funds rate at the end of 2026 was raised to 3.8% (up 0.4 percentage points from the March forecast of 3.4%), suggesting that at least one rate hike could occur within the year. Meanwhile, the FOMC also raised its inflation forecast for 2026: the core PCE inflation median rose to 3.3%, and overall PCE increased to 3.6% (previously around 2.7%); GDP growth forecast was slightly downgraded to 2.2%.

Interest rate-sensitive growth stocks (especially in the technology and semiconductor sectors) are thus on the front line. South Korean stocks had previously been viewed as typical “high beta” assets due to the AI boom, making them extremely sensitive to changes in global liquidity. Japanese stocks were also constrained by global liquidity expectations, although improvements in domestic wage growth data provided some support.

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

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

The structural vulnerability of the South Korean stock market is particularly pronounced. The KOSPI is highly dependent on the two semiconductor giants, Samsung Electronics and SK Hynix; any fluctuations in the semiconductor cycle or global AI demand can cause severe volatility in the index.

Continuous foreign capital outflow has been another key factor. Foreign investors made substantial profits during the previous rally, and there have been multiple instances of net selling since June, particularly in South Korean stocks, with some capital possibly shifting to new stock offerings in the U.S. (like SpaceX) or other assets. On June 23, the scale of foreign net selling significantly increased, becoming a main source of selling pressure.

In contrast, while the Japanese market was also dragged down by tech stocks, the sector's dispersion was relatively higher, keeping the Nikkei 225's decline around 3.5%.

Moreover, specific company dynamics intensified market pressures. According to market news, SK Hynix recently adjusted its AI chip (especially HBM) memory capacity configuration, shifting some production lines to more profitable traditional DRAM to optimize short-term profits. This action raised investor concerns about the short-term supply-demand balance of HBM, triggering sell-offs.

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

Looking ahead, the Japanese and South Korean stock markets will exhibit characteristics of "fluctuating bottoming out + structural differentiation." Short-term market volatility is expected to remain high, while fundamental support for the medium to long term persists, and the pullback actually provides an opportunity for quality assets acquisition.

Short-term volatility will dominate; recovery will depend on signals from the U.S. stock market and the Fed in the short term; the market is still in a period of high volatility adjustment. The performance of U.S. tech stocks will serve as a key barometer. If the Nasdaq index stabilizes or shows a technical rebound, Japanese and South Korean markets are expected to follow suit in recovery; conversely, if the Fed releases further hawkish signals or the second-quarter financial reports from Japanese and South Korean enterprises fall short of expectations, the pullback may continue or even deepen. Key events to watch include:

• U.S. CPI/PCE and employment data in June-July;
• Next FOMC meeting of the Fed (July);
• Second-quarter performance of major stocks such as Samsung Electronics, SK Hynix, and Tokyo Electron.

Strong fundamental support in the medium to long term indicates that pullbacks are opportunities. Global AI capital expenditures continue to grow rapidly, and the underlying logic of the semiconductor super-cycle has not changed. According to predictions by institutions like Goldman Sachs, from 2026 to 2031, global AI-related capital expenditures (computing, data centers, power) are expected to reach approximately $7.6 trillion, with single-year AI CapEx approaching $765 billion in 2026, rising gradually to $1.6 trillion by 2031; new capacity in data centers is expected to add nearly 100GW from 2026 to 2030, with total investment possibly reaching the $3 trillion level.

South Korea's leading position in HBM (High Bandwidth Memory) and advanced processes remains solid. SK Hynix's market share in HBM has long maintained between 50%-62%, and its supply share to NVIDIA's Rubin platform in the HBM4 era is expected to reach around 70%; Samsung Electronics is also accelerating capacity expansion, planning to increase HBM capacity by about 50% by 2026. The two tech giants have essentially locked in long-term orders until 2027, and the super-cycle of AI memory demand is still in its early stages.

From a long-term perspective, AI remains a productivity tool that alters the global landscape, and periodic adjustments cannot reverse the overall trend of technological advancement. Just as corrections after every technology bubble in the past have ultimately left generous returns for genuine infrastructure builders and innovators. This “Black Tuesday” may mark the turning point of AI investment from frenzy to rationality, from concepts to reality, and the resilience and potential of Japanese and South Korean stock markets are still worth looking forward to.

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