South Korean shares tumble on chipmaker selloff, won firms after rate hike

South Korean shares fell more than 6 percent on Thursday on renewed selling in chipmakers, while the won hit a two-month high after the central bank raised interest rates for the first time in more than three years and signalled more tightening.

The benchmark KOSPI fell as much as 7.6 percent during the day before paring some losses to end 6.4 percent down at 6,820.6 points. Sharp declines also triggered sidecar trading curbs on the KOSPI and the junior Kosdaq indexes.

The Bank of Korea raised its interest rate by 25 basis points to 2.75 percent, its first hike since 2023, aimed at stabilising a slumping won and containing inflationary pressures from brisk growth in Asia's fourth-largest economy.

ANZ Asia Economist Krystal Tan said Governor Shin Hyun Song's comments that inflationary pressures were expected to rise gradually showed the central bank's increased focus on the issue, and added that the won's continued weakness remained a key source of inflation risk.

An August hike is more likely if higher oil prices and won weakness bring back inflation risks, or if semiconductor-led strength spreads more rapidly into wages, Tan said.

On Thursday, the won firmed 0.7 percent to around 1,477.8 per dollar for the first time since May 12, extending its gains in July to more than 4 percent, supported by the central bank's hawkish stance. It is still down about 3 percent this year.

Among equities, the sell-off in chipmakers gained fresh momentum as the earnings season put the sector's rich valuations under scrutiny following months of gains and on concerns around a potential earnings slowdown.

Taiwan's TSMC, the world's leading AI chipmaker, reported a record quarterly profit, while chipmaking equipment supplier ASML raised its 2026 outlook on Wednesday and pledged a capacity boost.

Volatility in equities has been further exacerbated recently by highly leveraged exchange-traded funds tied to leading AI memory chipmakers, SK Hynix and Samsung Electronics as forced buying and selling amplify stock moves.

SK Hynix and Samsung Electronics, which make up more than half of the benchmark KOSPI, fell 11.5 percent and 8.8 percent, respectively, on Thursday.

South Korea's financial regulator on Thursday announced a series of regulatory measures aimed at easing stock market volatility triggered by single-stock leveraged ETFs and preventing investor losses.

Of the total 912 traded issues, 384 shares advanced, while 488 declined. Foreigners were net sellers of shares worth 1,378.8 billion won (US$933.26 million).

Reuters

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