Business Insider South Korea's KOSPI dropped more than 10% on Tuesday, with the index on track for its worst month in over 30 years. The volatility bled into US stocks.
- Volatility in Asian markets bleeding into US stocks has become a regular occurrence lately.
- US chip makers are getting hit on Tuesday after a brutal day in Korea's stock market.
- The sell-off has "elements of panic," as investors grasp for a reason behind the recent weakness.
South Korea is once again dragging down the AI trade.
US chip stocks were in the red on Tuesday as Asian markets endured a heavy round of selling, particularly in shares of chips and memory makers. The result has been another bout of volatility hitting US chip stocks at a critical moment for the AI trade.
The jitters in the US market have followed a predictable pattern lately: South Korea's KOSPI sells off sharply overnight, triggering wider weakness in global tech stocks that hits the US market once trading kicks off.
The KOSPI dropped more than 10% on Tuesday, largely due to investors dumping shares of Samsung and SK Hynix, two memory giants that make up more than half of the index's total value. Buying of both stocks by Korean investors has also been fueled by heavy leverage, exacerbating the declines as margin calls force even more selling.
Samsung stock tumbled 13%, while SK Hynix shares listed in Korea plunged nearly 15% as investors rushed for the exit. US-listed ADRs of SK Hynix dropped 9% shortly after the opening bell in New York. The Nasdaq 100 fell nearly 2%.
**Here's where US indexes stood shortly around 10:30 a.m. ET: **
: 7,400.96, down 0.16%S&P 500: 52,594.20, up 0.74% (+384.12 points)** Dow Jones Industrial Average**: 27,555.49, down 1.73%** Nasdaq 100**
Here are some of the most notable moves in the chips and memory sectors:
SK Hynix(Korea-listed): -14%Samsung: -13%Micron: -9%AMD: -8%Marvell: -8%Intel: -6%Broadcom: -2%Nvidia: -1%
South Korea's stock market has been exceptionally volatile this year after stellar gains in tech gave way to disorderly selling of the biggest winners. The KOSPI surged 110% through mid-June, but is down 33% from its peak. The index is on track for its worst month in more than 30 years, according to Jefferies.
Wall Street has been grasping for answers about what's behind the latest selling, with some analysts attributing the decline to investors rushing to take profits after a euphoric run-up in the AI trade.
David Morrison, a senior market analyst at Trade Nation, pointed to steep losses in Samsung and SK Hynix recently. SK Hynix's Korean shares are down 47% from their highs, while Samsung has dropped 38% from its peak. Neither stock is showing signs of a "significant rebound," he wrote in a note on Tuesday.
"There's an element of panic creeping in now," Morrison wrote. "Investors are exhibiting a lot of nervousness ahead of earnings reports from the major hyperscalers."
Microsoft, Meta, and Amazon will report second-quarter results this week, which has investors laser-focused on the AI narrative and whether firms will continue to double down on capex spending.
Economist David Rosenberg said the sell-off is rooted in concerns about Chinese competition in the AI race, something most investors weren't thinking about a month ago, he wrote this week.
JPMorgan's markets intelligence desk also said fears about Chinese competition are among the main drivers of the recent volatility.
Additionally, the bank pointed to the rotation going on in the the stock market as investors lean towards value stocks, as well as concerns related to the circular financing of AI. Investors also have "skepticism" about recent deals in the sector, such as Sandisk's partnership with Meta.
"I think people are just afraid/just want to sell tech/looking for excuses," Joshua Meyers, an executive director at JPMorgan, wrote in a note on Monday as the sell-off in Asia picked up steam. "Importantly, none of this seems fundamentally driven."
Business Insider Get AI news in your inbox
Daily digest of what matters in AI.