As of around 11 a.m., the KOSPI stood at 7,378.17, down 1.49 percent, from the previous session.
The retreat came just a day after the index briefly crossed the 7,500 mark for the first time in its history, having surpassed the 7,000 threshold in the previous session, as foreign investors, who had aggressively fueled the recent artificial intelligence (AI)-driven rally through heavy buying of KOSPI-listed chip stocks, sharply reversed course.
After recording a net purchase of 3.13 trillion won on May 6, the largest daily foreign inflow on record that helped push KOSPI above the 7,000 mark, foreign investors dumped more than 7 trillion won worth of shares in the previous session and extended heavy selling with another 3.45 trillion won in net sales in the day's morning trade.
Investor sentiment also weakened as uncertainty resurfaced over ceasefire negotiations between the U.S. and Iran, reviving concerns that the prolonged conflict in the Middle East could escalate again. Market jitters deepened further after reports that Washington was considering restarting "Project Freedom," an operation aimed at helping commercial ships stranded near the Strait of Hormuz leave the region safely.
Overnight on Wall Street, the Dow Jones Industrial Average fell 0.63 percent, while the S&P 500 and Nasdaq Composite declined 0.38 percent and 0.13 percent, respectively.
The Philadelphia Semiconductor Index dropped 2.72 percent as investors locked in gains in chip stocks after recent rallies. British chip designer Arm Holdings plunged 10.1 percent overnight amid renewed doubts over the production capacity of its artificial intelligence chips, further weighing on global semiconductor sentiment.
In Seoul, large-cap semiconductor shares led the decline after posting record highs a day earlier. Samsung Electronics fell 2.67 percent to 264,250 won, while SK hynix slipped 0.97 percent to 1,638,000 won. SK Square, the largest shareholder of SK hynix, also declined 1.36 percent to 1,084,000 won.
Defense and heavy industry shares were broadly weaker, with Hanwha Aerospace down 1.59 percent to 1,296,000 won, HD Hyundai Heavy Industries falling 6.35 percent to 649,000 won, and Doosan Enerbility sliding 4.99 percent to 129,600 won.
Battery and electronics shares also traded lower, with LG Energy Solution down 1.66 percent to 475,000 won and Samsung Electro-Mechanics falling 1.64 percent to 902,000 won.
Automakers outperformed the broader market, led by Hyundai Motor, which jumped 8.04 percent to 618,000 won, while Kia gained 4 percent to 163,900 won.
But the junior KOSDAQ outperformed the main board as foreign buying shifted into smaller growth stocks. The index rose 0.42 percent to 1,204.19. Foreign and institutional investors bought a net 380.2 billion won and 73 billion won worth of KOSDAQ shares, respectively, while retail investors sold a net 445.3 billion won.
Robotics and biotech shares continued to lead gains on the KOSDAQ. Rainbow Robotics surged 14.35 percent to 797,000 won, while Kolon TissueGene jumped 12.30 percent to 128,700 won. Among biopharmaceutical stocks, Samchundang Pharm rose 1.38 percent to 405,000 won, ABL Bio gained 2.85 percent to 130,000 won and LigaChem Biosciences climbed 6.79 percent to 195,100 won.
In contrast, secondary battery shares remained weak, with EcoPro BM falling 1.70 percent to 231,500 won and EcoPro sliding 3.57 percent to 154,000 won. Healthcare and semiconductor-related shares also traded lower, as HLB fell 2.18 percent to 58,200 won, while Alteogen edged down 0.42 percent to 355,000 won.
The South Korean won weakened slightly against the U.S. dollar, trading at 1,464.60 per dollar compared with 1,454 previously.
Meanwhile, the sell-off spread across major Asian markets. Japan's Nikkei 225 also fell 0.62 percent to 62,446.81 amid broader profit-taking in technology and semiconductor-related shares, Hong Kong's Hang Seng Index dropped 1.20 percent to 26,308.99 and China's Shanghai Composite slipped 0.19 percent to 4,172.13 reflecting a broader risk-off mood as investors reassessed geopolitical and valuation risks.
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