The Kospi index crashed more than 8% during intraday trading on July 7, triggering South Korea’s sixth circuit breaker of the year. Samsung Electronics and SK Hynix led the rout, both plunging 9% to 10%. The meltdown came despite Samsung releasing its highest-ever quarterly profit before the market opened—a figure that exceeded consensus estimates—as a combination of “buy the rumor, sell the fact” profit-taking and escalating fears of overinvestment in artificial intelligence sent the market into a panic.
According to the Korea Exchange, a Level 1 circuit breaker was activated on the KOSPI market at 1:51:33 p.m., halting trading in all stocks for 20 minutes. At the time of the halt, the Kospi stood at 7,401.56, down 649.77 points, or 8.07%, from the previous session. This marked the 12th circuit breaker in South Korean history and the first in seven trading days since June 26. Earlier, at 10:23 a.m., a sell-side sidecar was triggered, suspending program sell orders for five minutes after Kospi 200 futures fell more than 5%.
The day’s collapse was driven by a coordinated sell-off from foreign and institutional investors. At the time the circuit breaker was triggered, foreigners had net sold approximately 3.35 trillion won (approximately $2.2 billion) on the main KOSPI board, while institutions offloaded a net 237 billion won (approximately $155.4 million). Retail investors stepped in as the sole buyers, snapping up a net 3.53 trillion won (approximately $2.3 billion) in an attempt to defend the downside, but they were overwhelmed by the deluge of sell orders. Samsung Electronics and SK Hynix bore the brunt of the selling, tumbling 9.75% and 10.58%, respectively. SK Square plunged 13.11% and Samsung Electro-Mechanics dropped 11.82%, both posting double-digit losses.
On the surface, the sell-off was triggered by Samsung’s record results failing to clear an impossibly high bar. The company reported preliminary second-quarter operating profit of 89.4 trillion won (approximately $58.6 billion), a staggering 1,810% surge from a year earlier and above the market forecast of 84 trillion won (approximately $55.1 billion). However, revenue of 171 trillion won fell slightly short of some whisper numbers, stoking fears that the cycle has peaked. “Expectations matter,” said Kim Seok-hwan, an analyst at Mirae Asset Securities. “The level that market participants had priced in was far higher than even the official consensus, so the stock fell despite delivering a surprise.”
Compounding the pressure, fundamental doubts about the sustainability of AI-related capital expenditures have resurfaced, rapidly freezing investor sentiment. “Recently highlighted concerns about AI investment tripped up the market,” said Jeong Yong-taek, chief economist at IBK Investment & Securities. “Anxiety is growing that profitability could become excessive or that investment plans could face disruptions.” Notably, the rout was isolated to South Korean markets. The Philadelphia Semiconductor Index rose 2.17% at the same time, and Taiwan’s TAIEX gained 0.74%, underscoring the localized nature of the panic.
Market experts were unanimous in attributing the crash to liquidity instability and a high-volatility environment rather than deteriorating fundamentals. “Exhausted investors are misinterpreting price drops driven by simple supply-and-demand issues as fundamental deterioration,” noted Han Ji-young, an analyst at Kiwoom Securities. Indeed, trading volumes in leveraged and inverse single-stock products tied to Samsung Electronics and SK Hynix have surged recently, amplifying market swings. The proportion of trading value in these products jumped from 16.1% in June to 24.0% in July.
Despite the turmoil, the medium-to-long-term outlook for the semiconductor industry remains robust. “Due to physical capacity constraints, the semiconductor market is in a state of structural undersupply that will persist at least through the fourth quarter of next year, with supply unable to catch up with demand,” said Kim Sun-woo, an analyst at Meritz Securities, explaining that excessive market caution, not earnings deterioration, magnified the decline. Ryu Hyung-geun, an analyst at Daishin Securities, also predicted that “share prices will soon find their footing and stage a powerful rally,” adding that “a favorable environment is in place for the largest-ever shareholder return policy to gain momentum after third-quarter earnings are announced.”
Meanwhile, market anxiety persisted even after the circuit breaker was lifted. A Level 2 circuit breaker would be triggered if the Kospi falls 15% or more from the previous close, while a Level 3 halt—shutting down trading for the remainder of the day—would kick in at a 20% decline. The Kospi 200 Volatility Index (VKOSPI) spiked to 85.88 during the session, reflecting extreme fear. The tech-heavy Kosdaq index closed down 3.64% at 816.21, while the won-dollar exchange rate settled at 1,524.20 won (approximately $0.9992), down 5.8 won (approximately $0.0038).