Kospi, Kosdaq Trigger Sell Sidecars as Meta-Fueled Chip Rout Batters Korea Stocks

Kospi slumps 7.9% to the 7,600 level; Kosdaq drops 6.7%

Sell-side sidecars triggered on both the Kospi and Kosdaq

Samsung Electronics falls more than 9%; SK Hynix slides more than 14%

South Korea’s two main stock markets triggered sell-side sidecars on July 2 as concerns over overinvestment tied to Meta Platforms Inc. rattled sentiment and unleashed another bout of sharp volatility.

Brokerages said recent roller-coaster trading in domestic equities has worn down investors’ patience with semiconductor stocks. Still, they said firm earnings make the current pullback a buying opportunity.

According to the Korea Exchange, the Kospi and Kosdaq closed down 7.89% and 6.74%, respectively, on July 2. Both benchmarks fell sharply enough during the session to trigger sell-side sidecars, a temporary halt on the validity of program sell orders. It was the 15th such trigger this year for the Kospi and the sixth for the Kosdaq. For the Kospi alone, sidecars have been activated 30 times this year in total.

The trigger for the latest drop was a selloff in US semiconductor stocks. Earlier on July 2, New York equities fell broadly as chip shares led the decline. Nvidia dropped 1.25%, Broadcom fell 2.23%, Micron slid 10.57%, AMD lost 6.89%, Intel sank 9.03%, Applied Materials tumbled 9.97%, Lam Research fell 9.71% and SanDisk dropped 10.62%. The Philadelphia Semiconductor Index plunged 6.27%.

Sentiment had already been hit after Apple Chief Executive Officer Tim Cook likened memory price increases to a once-in-a-century flood and voiced frustration. Pressure intensified on July 2 after speculation emerged that Meta could enter the cloud business using its data-center infrastructure. That raised concerns the move could reflect overinvestment in AI data centers.

As doubts over capital spending spread, Samsung Electronics and SK Hynix, South Korea’s two biggest chip stocks, plunged more than 9% and 14%, respectively, in the domestic market.

Still, concerns over Meta’s use of excess computing capacity are not new. At Meta’s shareholder meeting in May, the company said it was considering leasing idle resources to outside companies if surplus capacity emerged.

Meta Compute, the organization leading that effort, had already been set up in January. The market had viewed a possible move into cloud services as a long-term business option Meta had been weighing in advance.

Kim Joong-han, an analyst at Samsung Securities, said computing power remains in an absolute shortage and the recent surge in AI demand has likely left both the broader industry and Meta itself short of capacity. Meta has also continued to sign large contracts with neo-cloud providers and data-center infrastructure companies as it focuses on expanding computing power, he added.

Brokerages said fears of weakening AI infrastructure demand are overblown despite the steep market drop on July 2. They recommended buying at lower levels.

Jo A-in, an analyst at Samsung Securities, said the recent volatility in chip stocks reflects shaken sentiment rather than the emergence of a new negative catalyst. Conflicting interpretations of the same developments are driving the swings. If second-quarter earnings top market expectations, doubts over the durability of AI investment could ease.

Mirae Asset Securities’ compilation of the latest guidance from global big tech companies showed total capital spending this year is projected at $806 billion, up 73% from a year earlier. Despite the high base, the firm expects spending to rise by more than 20% again next year.

Order backlogs also remain solid. In the first quarter, total remaining performance obligations disclosed by global big tech companies rose 24% from the previous quarter to $2.1 trillion. Of that, about $656 billion is expected to be recognized as revenue within two years.

Kim Young-gun, an analyst at Mirae Asset Securities, said Meta’s latest issue is difficult to interpret as signaling a decisive drop in AI infrastructure investment. He said the current market still offers an effective window for bargain buying in semiconductor stocks.

Noh Jeong-dong, Hankyung.com reporter dong2@hankyung.com