The drop followed a tumble on Wall Street on Thursday, as weak U.S. manufacturing data raised fears of a worsening economic outlook.
The KOSPI fell as much as 80.05 points, or 2.88 percent, to 2,697.63 in morning trading, marking its largest intraday drop since June 13, 2022. By 10:26 a.m., the index was down 2.71 percent at 2,702.53.
The last time the KOSPI fell below 2,700 during trading was on June 10.
Foreign and institutional investors led the rout, with foreigners offloading 1.69 trillion won ($1.23 billion) worth of KOSPI 200 futures in early trading.
Tech and semiconductor stocks were hit particularly hard. SK hynix, a major memory chip maker, plunged 7.97 percent, while Samsung Electronics dropped 2.89 percent.
Other large-cap stocks also suffered, with Hyundai Motor down 4.14 percent and KB Financial Group falling 4.42 percent.
The tech-heavy KOSDAQ index also dropped 2.73 percent to 791.30.
Lee Kyung-min, an analyst at Daishin Securities, attributed the market turmoil partly to the impact of yen carry trades, which involve borrowing yen at low interest rates to invest in higher-yielding assets like the Mexican peso.
"The Nasdaq has shown a pattern of plummeting whenever the yen strengthens," Lee said. "I estimate that about half of the carry trade positions have been unwound, and there has been a sufficient correction following the interest rate hikes."
