South Korean stocks faced heavy selling pressure immediately at the open on the 19th, with the KOSPI index widening its decline to more than 6% within less than 10 minutes of trading, breaching the 6,500-point psychological level and triggering the 25th sell-side circuit breaker (Sidecar) of the year. This marks the first activation of the mechanism in roughly two weeks, since August 6, reflecting a violent repricing of global risk assets after U.S. long-term Treasury yields surged to 19-year highs.
KOSPI opened at 6,528.77 points, down 341.06 points or 4.96% from the previous session, before accelerating its decline. By 9:11 a.m., the index had plunged 6.26% to 6,432.57 points. Just one trading day earlier, KOSPI had briefly touched the 7,200-point level intraday. The nearly 800-point round trip in a single day stunned market participants.
The sell-side circuit breaker was activated at 9:06 a.m. after KOSPI 200 futures fell more than 5% from the previous session and sustained that decline for one minute. South Korea’s Korea Exchange consequently suspended program sell orders for five minutes to ease the pressure of the rapid market decline.
Semiconductor Stocks Bear the Brunt as Foreign Investors Flee
The sell-off was centered on semiconductor stocks. Samsung Electronics (005930.KS) plunged as much as 7.26% intraday, with shares falling to ₩251,250 (approximately $178.65); SK Hynix (000660.KS) fell even deeper, down 8.48% to ₩1.54 million (approximately $1,100). SK Square (402340.KS) plummeted more than 11%, while Samsung Electro-Mechanics (009150.KS) and Hyundai Motor (005380.KS) fell 5.07% and 4.48%, respectively.
Nearly all of KOSPI’s top ten weighted stocks declined, with only Hanwha Aerospace (012450.KS) bucking the trend with an 8.55% gain. KB Financial Group (105560.KS) fell 3.80%, LG Energy Solution (373220.KS) dropped 1.99%, and Samsung Biologics (207940.KS) declined 2.35%.
On fund flows, foreign investors dumped shares aggressively from the opening bell, with net selling reaching ₩563.5 billion (approximately $400.6 million), while institutional investors also sold a net ₩21.4 billion (approximately $15.2 million). Retail investors played the role of buyers, posting net purchases of ₩577.7 billion (approximately $410.7 million), making them the sole source of buying support in the market.
The KOSDAQ index was not spared either, opening down 2.89% at 810.08 points before widening its decline to 3.26% at 807.00 points. All of KOSDAQ’s top ten market-cap stocks traded lower, including Alteogen (196170.KQ), Ecopro (086520.KQ), Ecopro BM (247540.KQ), and Rainbow Robotics (277810.KQ), with declines generally ranging from 3% to 5%. Notably, foreign investors were net buyers of ₩57.1 billion (approximately $40.6 million) on the KOSDAQ market, contrasting with their selling spree on the main board.
Surging U.S. Treasury Yields Ignite Global Risk-Off Sentiment
The immediate trigger for the South Korean stock market crash came from violent moves in the U.S. bond market. During New York trading on the 18th, the U.S. 30-year Treasury yield rose above 5.33% intraday, the highest level since 2007—a 19-year high. The 10-year Treasury yield also climbed to around 4.71%, its highest since January 2005.
Behind the surge in Treasury yields was the failure to extend the temporary U.S.-Iran ceasefire agreement, reigniting geopolitical tensions in the Middle East. Oil prices rose in response, with Brent crude October futures up 0.17% to $91.02 per barrel and West Texas Intermediate (WTI) September futures up 0.52% to $84.95 per barrel, both hitting their highest levels since July 24 and marking a third consecutive session of gains. The rebound in energy prices intensified inflation expectations, further pushing up long-term bond yields.
All three major U.S. stock indices closed lower on the 18th. The Dow Jones Industrial Average fell 116.38 points, or 0.22%, to close at 53,343.40; the S&P 500 dropped 53.30 points, or 0.69%, to 7,691.76; and the Nasdaq Composite suffered the steepest decline, falling 355.20 points, or 1.33%, to 26,289.71.
Semiconductor stocks were hit hard in the U.S. market as well. The Philadelphia Semiconductor Index plunged 4.98% in a single day, with SanDisk tumbling 8.89%, Micron Technology falling 7.06%, and SK Hynix’s American Depositary Receipts (ADRs) plummeting 9.20%. Artificial intelligence (AI) and semiconductor-related stocks became the primary targets for profit-taking in a high-interest-rate environment.
Kiwoom Securities analyst Han Ji-young noted: “With fading expectations for a U.S.-Iran ceasefire and surging yields on U.S. 30-year Treasuries and Japanese 10-year government bonds, the pressure from rapidly rising market rates has triggered concentrated profit-taking sell-offs centered on semiconductor stocks.”
Fund Managers Extremely Bullish; BofA Warns of Contrarian Sell Signal
The violent swings in South Korean stocks come at a time when global investor sentiment is at an extremely optimistic and sensitive stage. Bank of America’s August Global Fund Manager Survey, released on the 18th, showed that surveyed fund managers’ cash allocations had fallen to 3.5%—the sixth-lowest level since records began in 1998 and well below the 4% threshold set by the bank’s “Cash Rule.”
The report, led by BofA Chief Investment Strategist Michael Hartnett, indicated that global equity net overweight positions reached 56%, the highest since November 2021, marking a 14th consecutive month of overweight positioning. BofA’s Bull & Bear Indicator rose to 9.3, breaching the 8.0 warning threshold. Two contrarian indicators flashing sell signals simultaneously suggests that room for further market upside is extremely limited.
The survey was conducted from August 7 to 13, covering 203 fund managers with combined assets under management of $581 billion (approximately NT$18.5 trillion). Hartnett described the current extreme market divergence as “the bond market is in the ICU while the stock market is still at the karaoke bar.”
Fund managers broadly shared four consensus views: the global economy will not “land,” the Federal Reserve will not raise rates before the November midterm elections, AI capital expenditure will not be cut, and Democrats will not sweep both chambers of Congress. A record 56% of respondents expected a “no-landing” scenario for the global economy over the next 12 months, and a net 37% expected double-digit corporate earnings growth—the highest since August 2021.
However, the survey also revealed a deep contradiction: “long global semiconductors” remained the most crowded trade, selected by 53% of respondents, while “AI bubble” was cited as the biggest tail risk for a second consecutive month at 32%. Investors are simultaneously betting heavily on AI-related assets while viewing them as their greatest threat.
Hartnett explicitly stated in the report that the current positioning structure supports investors “retreating or rotating within risk assets, rather than adding exposure.” BofA’s proposed contrarian trading strategies include: long bonds, short commodities; long consumer staples, short technology; long consumer discretionary, short banks; and long U.K. equities, short U.S. equities.
Korean Won Weakens as Risk Aversion Spreads
In the foreign exchange market, the Korean won weakened against the U.S. dollar in tandem. At 9:17 a.m. in the Seoul foreign exchange market, the dollar-won exchange rate stood at ₩1,411.3 (approximately $1), with the won depreciating ₩1.1 (approximately $0.0008), or 0.08%, from the previous session. The won’s depreciation, coupled with the stock market decline, reflects intensifying pressure from foreign capital exiting South Korean assets.
Market participants noted that South Korea’s stock market, as a key barometer of the global semiconductor supply chain, is highly correlated with global AI investment sentiment. When surging Treasury yields erode growth stock valuations and fund manager positioning has reached extreme levels, any negative catalyst can trigger rapid deleveraging. While the Korea Exchange’s sell-side circuit breaker provides a temporary buffer, if the global rate environment continues to deteriorate, South Korean stocks may struggle to escape a volatile pattern in the near term.
From an industry perspective, the plunge in South Korea’s semiconductor giants Samsung Electronics and SK Hynix mirrors the declines of U.S. peers Micron and SanDisk, indicating that this is not a structural issue unique to South Korea but rather a collective repricing of high-valuation AI and semiconductor assets by global capital. Under the extreme positioning structure revealed by the BofA survey, any factor triggering profit-taking—whether escalating geopolitical tensions, rebounding oil prices, or long-term yields hitting fresh record highs—could spark a chain reaction of risk asset sell-offs.
Investors’ attention will now turn to the Jackson Hole global central bank symposium scheduled for August 27-29. The tone of Federal Reserve Chair Kevin Warsh’s remarks will be a key variable in determining the direction of global interest rates and the fate of risk assets. The survey showed that 53% of fund managers expect Warsh to maintain a neutral stance, but the 31% expecting a hawkish tilt far exceeds the 7% expecting dovishness—an asymmetric distribution of expectations that suggests the market’s capacity to absorb a hawkish surprise is quite fragile.