Kospi Drops 2.6% on Fed Rate-Hike Fears, Casting Doubt on Return to 7,000

The Kospi fell more than 2% at the open on Aug. 31, moving further away from the 7,000 level as hawkish comments from Federal Reserve Chair Kevin Warsh and rising long-term US Treasury yields weighed on sentiment.

According to the Korea Exchange, the benchmark index opened at 6,613.58, down 2.58% from the previous session. It remained under pressure, trading around 6,590 as of 9:10 a.m.

Foreign and institutional investors drove the decline. As of 9:10 a.m., foreigners were net sellers of 196.5 billion won in the Kospi market, while institutions sold a net 102.7 billion won. Retail investors were net buyers of 262.2 billion won.

Semiconductor stocks led the losses. Samsung Electronics fell more than 3%, while SK Hynix and SK Square each dropped more than 3%. Samsung Electro-Mechanics and Doosan Enerbility lost more than 4%, and Samsung Biologics fell more than 2%. Most other heavyweight stocks also traded lower, including Samsung Life Insurance, Samsung C&T, Hyundai Motor, HD Hyundai Heavy Industries, Celltrion and SK Inc. LG Energy Solution and KB Financial Group were slightly higher.

By sector, machinery and equipment and construction each fell about 4%. Electrical and electronics, manufacturing, securities, finance and insurance also weakened. The selloff extended beyond large caps to mid- and small-cap shares.

South Korean stocks tracked weakness in US technology shares on Aug. 28. The Philadelphia Semiconductor Index tumbled 3.47%, while the Nasdaq Composite closed down 0.52% at 26,402.42. The S&P 500 fell 0.25% to 7,711.76, and the Dow Jones Industrial Average slipped 0.02% to 53,559.99.

On Wall Street, expectations for higher rates strengthened after Warsh's Jackson Hole speech. He said recent personal consumption expenditures and consumer price index data were better than expected, but that it was hard to conclude the underlying inflation trend had improved meaningfully. After the speech, market-implied odds of a September Fed rate increase rose to about 59% from the mid-30% range.

Higher long-term Treasury yields added pressure on technology stocks, especially chipmakers. Uncertainty surrounding US semiconductor tariffs and export controls, along with concerns over rising competition from Chinese DRAM maker ChangXin Memory Technologies, or CXMT, also weighed on the sector.

This week brings several events that could influence whether the Kospi can reclaim 7,000. In the US, investors are awaiting August nonfarm payrolls and the Institute for Supply Management's manufacturing purchasing managers index. In South Korea, August export data and subsequent foreign flows into semiconductor stocks will be closely watched.

Broadcom is due to report earnings early on Sept. 3. The market is focused on revenue growth in its AI accelerator and networking businesses, as well as guidance for future AI sales. After Nvidia reported results and guidance that topped expectations, Broadcom's earnings are also a key variable for semiconductor stocks in South Korea and overseas.