selloff

South Korean stocks plummeted more than 4 percent Wednesday amid escalating tensions between the United States and Iran and a tech slump fueled by concerns over the valuation of stocks related to artificial intelligence (AI). The local currency was trading lower against the U.S. dollar.

The benchmark Korea Composite Stock Price Index (KOSPI) shed 366.11 points, or 4.52 percent, to close at 7,730.82, almost eclipsing most of the over 8 percent surge from the previous day.

At one point, the index fell as low as 7,541.11.

Due to the sharp fall, the Korea Exchange had activated a sell-side sidecar for the index at 1:16 p.m., halting program trading for five minutes.

Trade volume was moderate at 457.5 million shares worth 39 trillion won (US$25.6 billion), with losers outnumbering winners 547 to 343.

Foreigners continued their sell-off for the 23rd consecutive session, dumping a net 2.77 trillion won, while retail investors and institutions purchased local shares worth 4.86 trillion won. Institutions sold 2.27 trillion won.

Market analysts said the KOSPI lost ground as tensions resurfaced in the Middle East after the U.S. struck Iran in response to the shooting down of an American Apache helicopter in the Strait of Hormuz and then Tehran hit back.

The risk-on appetite was also sapped by an overnight tech slide on Wall Street caused by concerns over the valuation of the AI stocks on news that Crusoe Energy Systems, a data center developer, suspended one of its projects upon the request of an unidentified big tech customer.

The tech-heavy Nasdaq composite closed 0.97 percent lower, and the S&P 500 dropped 0.26 percent, while the Dow Jones Industrial Average rose 0.17 percent.

Major tech shares led the market decline, with Broadcom losing 1.12 percent, Apple sliding 3.64 percent, Micron falling 1.4 percent and Nvidia down 0.2 percent.

Investors’ eyes are now on the upcoming release of the U.S. Consumer Price Index (CPI), which could give further clues on the U.S. Federal Reserve’s monetary policy amid bets on a hawkish pivot and the initial public offering of SpaceX later this week.

“The South Korean stock market was weighed down as risk aversion sentiment strengthened ahead of the U.S. CPI and Oracle’s earnings release, once triggering a sell-side sidecar,” Lee Kyoung-min, an analyst at Daishin Securities, said.

Lee said a hot inflation report could further contract the market sentiment, raising concerns over a possible U.S. rate hike.

In Seoul, market top-cap Samsung Electronics slid 6.06 percent to 302,500 won, while its chipmaking rival SK hynix plunged 7.54 percent to 2.05 million won.

AI investment firm SK Square shed 6.78 percent to 1.18 million won, and Samsung Electro-Mechanics shot down 8.38 percent to 1.8 million won.

Samsung Life Insurance dipped 6.36 percent to 368,000 won, and Samsung C&T plummeted 5.01 percent to 407,500 won.

Auto shares were also weak, with Hyundai Motor down 5.79 percent to 602,000 won, and its sister Kia losing 2.8 percent to 159,700 won. Hyundai Mobis dropped 4.2 percent to 570,000 won.

Internet portal operator Naver, which had recently rallied on news on its partnership with Nvidia, nosedived 11.67 percent to 227,000 won. Home appliances maker LG Electronics shot down 9.68 percent to 224,000 won.

Major shipbuilder HD Hyundai Heavy was among the few gainers, jumping 4.74 percent to 641,000 won.

Defense giant Hanwha Aerospace also climbed 1.48 percent to 1.03 million won.

The Korean won was quoted at 1,524.2 won against the U.S. dollar at 3:30 p.m., down 12.1 won from the previous session.

Bond prices, which move inversely to yields, closed mixed. The yield on three-year Treasurys added 2.5 basis points to 3.881 percent, and the return on the benchmark five-year government bonds dropped 3.2 basis points to 4.070 percent.

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As the rally in AI stocks fades, investors were cautious at the open on Friday, with European markets opening to mixed sentiment following steep falls in Asian markets.

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Indices in London and Frankfurt quickly moved into negative territory, with the FTSE 100 dropping nearly 0.4% and the DAX losing 0.3% right after the opening. The Paris CAC 40 and the IBEX 35 in Madrid were both up 0.3%, while Milan’s main index was flat. So was the EURO STOXX 50, a benchmark index of 50 blue-chip companies from the eurozone.

Investors are awaiting the latest US non-farm payrolls report and keeping an eye on developments in the Middle East.

The US job data is important for forecasting what the Fed’s next move could be. Kathleen Brooks, research director at XTB, said in a market note, “There is now a near 40% chance of a rate hike by year-end. We expect financial markets to be extremely sensitive to today’s data,” adding that this will be the first such report with Kevin Warsh as chairman of the Federal Reserve.

In the UK, the latest data from Halifax showed that house prices unexpectedly declined in May. House prices fell 0.1% month on month, but were still up 0.5% year on year, missing expectations for a 1% jump.

Oil markets are awaiting further direction

Oil prices stabilised after falling on Thursday. Brent crude, the international benchmark, was slightly down and traded at $94.73 per barrel at 10:00 CET. It had been trading at about $70 per barrel before the start of the war in late February.

Benchmark US crude was little changed at $92.51 a barrel.

Oil prices remain under pressure as the Strait of Hormuz, a narrow waterway crucial for global oil and natural gas transport, remains effectively closed, and the war-induced energy shock is threatening to slow economic growth and fuel inflation in many countries.

American and Iranian negotiators reached a tentative deal last week to extend their ceasefire, but the agreement has not been finalised. Meanwhile, developments in Lebanon have cast doubt on the prospects for a permanent end to the conflict.

On Thursday, the Iran-backed Lebanese militant group Hezbollah rejected the latest ceasefire agreement between the Lebanese and Israeli governments.

“While there are few signs of progress in US-Iran talks, the oil market continues to trade on expectations of an imminent deal that would resume flows through the Strait of Hormuz,” ING commodities strategists Warren Patterson and Ewa Manthey wrote in a report.

Asian markets lose steam as AI craze cools

Wall Street rallied on Thursday after falling oil prices and bond yields eased pressure on US stocks. Banks, small-cap companies and other stocks that had previously been left behind by the euphoria around artificial intelligence led the gains.

Banks also helped lead the market, including gains of 5% for Goldman Sachs, 4.7% for Fifth Third Bancorp and 4.4% for U.S. Bancorp.

They helped to more than make up for losses among some AI stocks, which took a sudden back seat after dominating the market. Analysts have been saying AI stocks may have run too high, becoming too expensive, and that the broader US stock market may be set for a slowdown following an unrelenting streak of nine straight winning weeks for the S&P 500, its longest since 2023.

On Wall Street on Thursday, computer chipmaker Broadcom’s shares sank 12.6% after it issued guidance that fell short of investors’ expectations, raising concerns about the wider AI and technology sector.

US memory chip maker Micron Technology dropped 7.7%, and cybersecurity company CrowdStrike Holdings fell 3.8%.

Still, the benchmark S&P 500 climbed 0.4%, and the Dow Jones Industrial Average gained 1.7% to a record high. The tech-heavy Nasdaq Composite edged 0.1% lower.

But in Asia, investors dumped key AI-related shares, with South Korea’s SK Hynix plunging 8.6% and Samsung Electronics shedding 5.4%.

The Kospi dropped 5.1% to 8,199.44. The index has roughly doubled over the past year, lifted by gains in major technology companies.

Japan’s Nikkei 225 slipped 1.3% to 66,573.85, with technology shares leading the decline, even as official data showed that Japan’s real wages rose for the fourth consecutive month. Chip equipment maker Tokyo Electron’s shares fell 7%.

Hong Kong’s Hang Seng declined 1.2% to 24,948.96, while the Shanghai Composite Index fell 0.3% to 4,045.45.

Australia’s S&P/ASX 200 fell 0.7% to 8,623.50.

Taiwan’s Taiex gave up 1.3%, while India’s Sensex was up 0.1%.

In other trading early on Friday, the US dollar fell to 159.96 Japanese yen from 160.03 yen. The euro was trading at $1.1635, up 0.2%. Gold prices were down 0.3%, trading at around $4,490.70.