KOSPI Enters Bear Market Amid Semiconductor Selloff and Rate Hike

South Korea's benchmark KOSPI index has entered a bear market after falling more than 25% from its record high reached in late June 2026. The downturn culminated on Thursday with a crash of up to 8%, sending the index to a low of 6,731. This volatility was driven by a steep selloff in semiconductor giants Samsung Electronics and SK Hynix, which combined for roughly half of the index's value. The crash followed declines in U.S. chip shares and escalating Middle East tensions after U.S. strikes on Iran.

Adding to the pressure, the Bank of Korea raised the benchmark policy rate from 2.5% to 2.75% to combat inflation and household debt, marking the first hike in over three years. The Korea Exchange activated a five-minute sell-side sidecar trading halt during the Thursday plunge, the 37th such instance this year. While retail investors remained net buyers, foreign investors have sold nearly $110 billion in equities throughout 2026.

In response, the Government of South Korea is reviewing measures to regulate high-risk single-stock leveraged ETFs tied to major chipmakers. The Financial Services Commission is targeting these products to mitigate extreme price swings and improve market stability. This instability has also sparked concerns regarding spillover effects in other regional markets, including China's Star Market 50 Index.