The benchmark KOSPI tumbled 7.57 percent to close at 5,554.22, marking its steepest decline since July 28. The index extended its losing streak to seven consecutive sessions, shedding 21 percent over the period.
The selloff came as U.S. inflation concerns and renewed doubts about the profitability of artificial intelligence (AI)-led investment battered semiconductor shares, particularly Samsung Electronics and SK hynix.
The KOSPI opened 5.59 percent lower at 5,673.01 and plunged as much as 9.29 percent to an intraday low of 5,450.81 before recovering some losses late in the session. It finished at its lowest closing level since April 7.
Foreign investors sold 3.63 trillion won (US$2.7 billion) worth of KOSPI shares, extending their selling streak to eight consecutive sessions. Retail investors bought 1.29 trillion won, while institutions purchased 1.69 trillion won throughout Thursday's session.
The losses were concentrated in the country's two largest chipmakers Samsung Electronics and SK hynix as investors reassessed the profitability of massive AI infrastructure investment amid rising borrowing costs.
The selloff followed the release of U.S. consumer price data overnight showing that inflation rose faster than expected in September. Consumer prices increased 3.7 percent from a year earlier, exceeding the market forecast of 3.6 percent. Core inflation also came in above expectations at 2.6 percent.
The figures revived concerns that the Federal Reserve could raise interest rates again, potentially increasing financing costs for technology companies investing heavily in AI infrastructure.
Questions over the sustainability of AI spending also intensified after research firm Gartner warned of a widening gap between projected infrastructure investment and the revenue needed to justify it.
The concerns weighed on U.S. technology stocks overnight. The Nasdaq Composite fell 1.88 percent, while the Philadelphia Semiconductor Index dropped 4.30 percent, extending its losing streak to six sessions.
Samsung Electronics closed 9.48 percent lower at 210,000 won after briefly falling to 204,500 won. SK hynix plunged 11.06 percent to 1,262,000 won, having touched an intraday low of 1,238,000 won.
The two companies, whose combined market capitalization accounts for nearly half of the KOSPI, amplified the index's decline as investors retreated from memory chipmakers that had benefited from the AI boom.
Other technology stocks also suffered heavy losses. Samsung Electro-Mechanics, a major electronic components supplier, plunged 15.36 percent, while SK Square, the largest shareholder of SK hynix, dropped 10.21 percent.
The weakness extended to automakers, battery manufacturers and industrial companies. Hyundai Motor fell alongside Samsung SDI and Doosan Enerbility as selling pressure spread beyond the semiconductor sector.
Some defensive stocks bucked the downturn. Samsung Biologics gained 5.50 percent, while Celltrion advanced 1.28 percent and Hana Financial Group rose 0.66 percent.
By sector, electrical and electronics shares dropped 10.13 percent, while medical and precision equipment stocks fell 8.87 percent. Pharmaceutical shares rose 2.65 percent and food and beverage stocks gained 2.05 percent.
The severe decline triggered a sell-side trading curb shortly after the opening bell, temporarily suspending program sell orders. As the index's losses exceeded 8 percent in afternoon trading, a circuit breaker was activated at around 12:30 p.m., halting all KOSPI trading for 20 minutes.
The market turmoil prompted the Financial Services Commission to hold an emergency meeting Thursday afternoon. Financial authorities urged caution over excessive borrowing and leveraged investment amid heightened volatility.
The junior KOSDAQ also suffered a sharp decline, falling 7.65 percent or 63.06 points to close at 760.82. It dropped below the 800 mark at the opening and extended its losing streak to six sessions.
The KOSDAQ opened at 784.45 and fell as low as 745.43, a decline of 9.52 percent before paring some losses toward the close.
A sell-side trading curb was activated shortly after the market opened, followed by a circuit breaker at around 12:20 p.m. as losses exceeded 8 percent. Trading was suspended for 20 minutes, marking the first such halt since July 29.
Unlike the KOSPI, where foreign selling dominated, overseas investors bought 217.7 billion won worth of KOSDAQ shares. Retail investors sold 66.7 billion won, while institutions unloaded 163.2 billion won.
Semiconductor equipment and battery-related companies were among the hardest hit.
Jusung Engineering, a semiconductor equipment manufacturer, plunged 14.97 percent, while EcoPro BM, a producer of cathode materials for rechargeable batteries, lost 9.10 percent. Its parent company EcoPro also declined sharply.
Biotechnology and robotics stocks remained under pressure. Alteogen, a developer of drug-delivery technologies, fell 4.90 percent, while Rainbow Robotics, a manufacturer of industrial and collaborative robots, dropped 9.44 percent.
The South Korean won weakened against the dollar, with the exchange rate reaching 1,344.6 won per dollar at around 3:30 p.m.
Asian markets also retreated, despite their losses were smaller than South Korea. Japan's Nikkei 225 fell 4.90 percent to 64,425.95, while China's Shanghai Composite declined about 1.6 percent to 3,707.48. Taiwan's benchmark index dropped 3.41 percent.
Investors are closely watching upcoming U.S. economic data, the Federal Reserve's policy meeting later this month and quarterly earnings from major technology companies for clues to whether the selloff will deepen.
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