South Korean shares tumble nearly 8% on chipmaker selloff, won steady after rate hike

South Korean shares tumbled nearly 8% on Thursday on renewed selling in chipmakers, while the won held near a two-month high after the central bank raised interest rates for the first time in more than three years and signalled more tightening.

The benchmark KOSPI fell as much as 7.6% to 6,730.87 points, erasing the previous session’s gains.

Sharp declines also triggered sidecar trading curbs on the KOSPI and the junior Kosdaq indexes.

The Bank of Korea raised its seven-day repurchase rate by 25 basis points to 2.75%, matching all but one of 37 economists surveyed in a Reuters poll.

The hike “reflects how inflation risks and pressure on the won have sharply reduced its room to wait”, Hebe Chen, a market analyst at Vantage Markets, said.

“With oil prices still elevated and currency weakness threatening to add to imported inflation, delaying action would have carried a growing cost,” Chen said.

Oil prices rose for a fourth straight day on Thursday following a new wave of US strikes on the Iranian military.

The first hike since January 2023 is aimed at stabilising a slumping won and containing inflationary pressures fanned by brisk growth in Asia’s fourth-largest economy.

The won held steady around a mid-May peak of 1,485.3 per dollar, up about 4.7% in July, supported by the central bank’s hawkish stance.

It is still down more than 3% this year.

Among equities, SK Hynix tumbled more than 12% while rival Samsung Electronics fell nearly 10%.

The two memory chipmakers make up more than half of the KOSPI. Single-stock leveraged exchange-traded funds linked to SK Hynix and Samsung Electronics, introduced in late May, have emerged as a key source of market volatility, with forced buying and selling amplifying moves in both chip stocks and the KOSPI.

“For retail investors holding these products, the risk is asymmetric: the leverage accelerates losses on the downside far faster than it builds wealth on the upside in a volatile tape like this,” said Inki Cho, a senior financial market strategist at online trading platform Exness.

The chief of South Korea’s top financial regulator said the watchdog would announce new measures on single-stock leveraged ETFs soon to improve stability in the stock market.

Despite recent losses, the KOSPI has risen more than 62% this year, making it one of the best-performing indexes globally.

Of the total 909 traded issues as of 0317 GMT on Thursday, 350 shares advanced, while 524 declined. Foreigners were net sellers of shares worth 1,162.4 billion won ($782.98 million).