South Korea’s stock market declined for a third consecutive session, though the drop was more moderate than in the previous two days, as investors digested Samsung Electronics’ earnings and fresh government stabilization measures. The Kospi index closed 1.2% lower after significant intraday swings, having earlier rallied as much as 5.5%.

Samsung Electronics shares rose 0.7%, supported by the company’s semiconductor division reporting a profit surge of over 250 times in the second quarter. In contrast, SK Hynix shares dropped 5.6%, extending their three-day decline to roughly 27%.

Josh Gilbert, chief analyst at eToro for Asia Pacific and the Middle East, noted that such volatility has become an unavoidable cost of entry into the market, but it does not prove the AI theme is over. He added that this week’s sharp swings in Korean stocks, triggered by the liquidation of leveraged positions, mean investors should expect continued high volatility. As long as fundamentals remain strong, the market will eventually revert to them.

Retail investors once again became net sellers, offloading 1.4 trillion won (approximately $995 million) worth of Kospi-listed stocks. Foreign investors, however, net purchased a similar amount of shares.

The Kospi index has plunged 34% so far in July, putting it on track for its worst-ever monthly performance. South Korea, home to two major chip giants, has been a key beneficiary of the global AI boom, but heavy selling pressure has emerged in recent weeks as investors grow increasingly skeptical about the returns on massive capital spending in the sector.

What are the key factors behind the market's stress?

Market sentiment is also tense as investors watch for the effectiveness of government measures to curb leverage and market volatility. The semiconductor division of Samsung Electronics reported an operating profit of 89.2 trillion won ($62 billion) for the quarter ending June, exceeding the average analyst estimate of 79.3 trillion won. The overall net profit of Samsung Electronics reached 71.3 trillion won, also surpassing expectations.

Senior officials from South Korea’s Ministry of Finance, central bank, and financial regulators held an emergency meeting on Wednesday evening, pledging further steps to stabilize the stock market and restrict retail investors’ participation in leveraged ETFs. The move came after two consecutive days of sharp declines that cost investors billions of dollars.

The Ministry of Finance stated that the new measures include limiting retail participation in leveraged ETFs, such as imposing a maximum weight for such products in an investor’s overall portfolio and increasing transaction costs.

Kim Dojoon, CEO of Zian Investment Management, commented that these measures may help reduce market volatility in the future but cannot immediately halt the current trend. He noted that the core problem is a lack of buying interest in the market. New buyers are needed, whether through the market stabilization fund or other support. The most important thing is to signal to the market that there is still buying power.