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South Korea’s financial regulator said it is moving up the start date for a higher deposit requirement on retail trading of single stock leveraged ETFs to July 31, aiming to address market volatility. The Financial Services Commission said retail investors will need to hold a cash deposit of around 30 million won, roughly $20,000, to trade these products, bringing forward a rule that had been planned for sometime in August.
The move is intended to curb speculative retail trading. The approval of domestic single stock leveraged ETFs tied to Samsung Electronics and SK Hynix in late May has drawn criticism for contributing to heightened market volatility.
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The selloff reflects two distinct but reinforcing forces: a reassessment of AI infrastructure spending sustainability following Alphabet’s results, and an oil price shock adding a fresh inflation angle to the risk off mood. Chipmakers, which have been among the largest beneficiaries of the AI spending boom, are bearing the brunt given their direct exposure to any moderation in hyperscaler capex. The won’s move to an 11 week high despite the equity rout suggests some of the flow is defensive positioning rather than a broad based exit from Korean assets. With Brent back above the psychological $100 level, traders are treating the combination of a tech valuation reset and an energy driven inflation scare as a genuine double headwind rather than a single factor story.
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Asian chipmakers and broader equities are being squeezed from both sides, an AI spending scare out of Wall Street and an oil shock out of the Middle East.
Summary:
- The Korea Exchange activated sidecar trading curbs on both the KOSPI and KOSDAQ after sharp intraday declines
- KOSPI fell around 5.5%, partly reversing gains from the prior three sessions, with Samsung Electronics down circa 7% and SK Hynix down circa 7%
- The won firmed to its strongest level in around 11 weeks against the dollar even as equities sold off
- Foreign investors sold a substantial amount of South Korean shares
- Japan’s Nikkei fell more than 2.5%, with the broader Topix down around 1.3%, extending the Nikkei’s monthly decline to over 7% and deeper into correction territory
- The selloff was triggered by a sharp overnight drop in Alphabet shares after the company flagged higher spending plans alongside cash burn, dragging down other major US tech names and the Nasdaq
- Brent crude’s climb back above $100 a barrel on the widening Middle East conflict added to the risk off tone across the region
South Korean and Japanese equities fell sharply on Friday as concerns over the sustainability of heavy AI infrastructure spending combined with an oil price spike to drive a broad risk off move across Asia. The selloff was severe enough in Korea to trigger automatic trading curbs on both major indices.
The Korea Exchange activated a sidecar mechanism on the KOSPI after the index fell around 5.5%, temporarily halting programme trading, with a similar curb triggered on the KOSDAQ after futures there fell by more than 6%. The KOSPI’s decline partly erased gains built up over the prior three sessions, with heavyweight chipmakers among the hardest hit. Samsung Electronics dropped around 7% and SK Hynix fell by a similar margin, while battery maker LG Energy Solution also slid sharply. Foreign investors were net sellers of several hundred million dollars worth of Korean shares. Even so, the won firmed to its strongest level in roughly eleven weeks against the dollar, suggesting the currency move was not simply tracking the equity selloff.
The trigger for the tech led decline came from Wall Street overnight, where shares of Google parent Alphabet sank sharply after the company reported higher spending plans alongside notable cash burn, reviving investor concern about whether returns from AI infrastructure investment are keeping pace with the scale of the outlay. Other major US technology names fell in sympathy, and the Nasdaq closed lower by more than 2%. South Korea’s chipmakers, along with Taiwan’s TSMC, have been among the biggest beneficiaries of the AI spending boom, leaving them especially exposed to any sign of moderating capital expenditure among the large US hyperscalers.
Japan’s Nikkei fell by more than 2.5%, with the broader Topix down around 1.3%, extending the Nikkei’s decline for the month to more than 7% and pushing it deeper into correction territory. Strategists noted the index has been driven largely by overseas factors, including moves in the KOSPI and the US Philadelphia semiconductor index, rather than domestic developments, with one strategist suggesting the trend could shift once Japanese corporate earnings season, which begins this week, offers a clearer read on demand.
Adding to the pressure across the region, Brent crude’s climb back above $100 a barrel on the escalating Middle East conflict revived fears of a fresh inflation shock, compounding the risk off mood already triggered by the AI spending concerns and reinforcing the sense among traders that markets are now navigating two distinct sources of stress simultaneously.
This article was written by Eamonn Sheridan at investinglive.com.