KOSPI Sinks Nearly 5% Into Technical Bear Market as Chip Stocks Slide and Iran War Escalates Sharply

SEOUL — South Korea's benchmark KOSPI index tumbled nearly 5% Monday as investors continued unloading shares tied to artificial intelligence and semiconductors, pushing the index deep into technical bear market territory even as most other Asian markets traded higher.

The KOSPI opened its first session since Friday's Constitution Day holiday sharply lower, sliding as far as 6,498 points before paring some of its losses through the morning. By early afternoon, the index sat around 6,513, down more than 4.5% on the day. The decline placed the KOSPI more than 25% below its June peak, meeting the commonly used threshold for a technical bear market and marking one of the sharpest reversals for a major global index so far this year.

The selloff was driven by a combination of factors weighing on investor sentiment simultaneously: intensifying competition in the global artificial intelligence race, a broader semiconductor stock rout that has spread across Asian and U.S. markets in recent sessions, and rapidly escalating conflict between the United States and Iran that has sent oil prices climbing.

Chip sector under renewed pressure

South Korea's chip-heavy stock market has been particularly exposed to the recent global technology selloff, given the outsized role Samsung Electronics and SK Hynix play in the index. The Philadelphia Semiconductor Index shed 4.3% in the United States on Friday while Korean markets were closed for the holiday, leaving local investors to absorb several sessions' worth of global chip-sector losses in a single trading day upon reopening. Both Samsung Electronics and SK Hynix opened Monday down more than 5% before foreign investors stepped in to buy shares, helping the broader market recover some ground as the session progressed.

Rising competition from Chinese artificial intelligence developers has added further pressure to the memory chip trade, compounding concerns that have built for weeks over whether the massive run-up in AI-related stock valuations earlier this year can be sustained. The KOSPI had been one of the world's best-performing major indexes for much of 2025 and early 2026, driven by heavy global investment in South Korea's dominant position in memory chip production, but that rally has partially unwound in a series of sharp declines since June.

Oil prices add to market anxiety

Compounding the pressure on Korean equities, oil prices extended their climb Monday as the war between the United States and Iran showed further signs of escalating. Brent crude traded above $90 a barrel, continuing a rally that began after Kuwait reported that Iran had struck a power and water desalination plant over the weekend. The United States announced additional strikes on Iranian targets early Monday, marking a ninth consecutive night of American military action against Iran.

South Korea's economy is particularly sensitive to swings in global energy prices given the country's heavy reliance on imported oil and gas, a dynamic that has historically amplified market reactions to Middle East tensions. The won weakened further against the U.S. dollar Monday, extending a slide that has been compounded by a strengthening dollar and rising import-price pressures following the Bank of Korea's first interest rate increase since 2023.

A volatile year for Korean markets

Monday's decline continues what has been an extraordinarily volatile year for the KOSPI. The index reached an all-time high in June before entering a sharp reversal marked by multiple single-session drops of 5% to 10% and repeated circuit-breaker and sidecar trading halts, mechanisms the Korea Exchange uses to pause trading automatically during periods of extreme volatility. Despite the recent turmoil, the index remains up significantly from where it stood a year earlier, reflecting the scale of the rally that preceded the current downturn.

Trading data from Monday's session showed foreign investors stepping in as net buyers during the early hours, concentrating their purchases in electronics stocks even as individual and institutional investors sold shares on net. That pattern of foreign buying helped the index recover from its lowest point of the morning, though the broader market remained solidly negative through midday trading.

What comes next for investors

Analysts are closely watching a wave of upcoming earnings reports from major U.S. technology companies as a potential turning point for chip-sector sentiment. Alphabet is scheduled to report earnings later this week, followed by Microsoft, Meta and Amazon before the end of the month. Their capital spending outlooks, particularly regarding continued investment in artificial intelligence infrastructure, are expected to play a significant role in determining whether chip stocks stabilize or continue their recent slide.

For now, South Korean markets remain caught between two significant sources of global uncertainty: doubts about the durability of the artificial intelligence investment boom that fueled much of the KOSPI's earlier rally, and an escalating Middle East conflict that continues to push energy prices higher with no clear resolution in sight. Monday's session offered little indication that either source of pressure is likely to ease in the immediate term, leaving Korean investors bracing for continued volatility in the sessions ahead.