South Korea's benchmark stock index snapped its two-session advance, closing sharply lower as semiconductor and automobile shares dragged the market down. The Korea Composite Stock Price Index (KOSPI) fell 4.0% to finish at 6,562.72 points.

Meanwhile, data released on Wednesday by the country's statistics office showed that consumer prices rose 3.1% in August from a year earlier, slightly cooler than the 3.2% median estimate in a Bloomberg survey but accelerating from July's 2.8% reading. More notably, core inflation—which strips out volatile food and energy costs—quickened to 3.4% from 2.6% in July, marking the fastest pace since May 2023 and signaling persistent underlying price pressures beyond energy-related increases.

These figures are likely to keep the Bank of Korea vigilant on inflation, even though the headline rate was influenced by one-off factors. The finance ministry attributed part of the impact to mobile phone bill discounts offered during the same period last year, which affected the comparison base.

Analysts at JPMorgan, led by Rajiv Batra and Mixo Das, noted in a research report that short-term Korean retail investors are unlikely to increase stock purchases significantly. They cited weak market sentiment combined with probable continued outflows from leveraged exchange-traded funds (ETFs). However, they added that corporate buybacks are emerging as another source of new buying demand for local shares, and long-only fund buying activity is also beginning to recover. Both emerging market and global investors retain room to increase allocations, with emerging market funds currently significantly underweight South Korea and no longer constrained by investment mandate clauses.

Societe Generale offered a different perspective, suggesting that Korean retail investors are shifting from leveraged ETFs toward structured products linked to semiconductor stocks. Strategies including Rajat Agarwal wrote in a note that while single-stock leveraged ETF inflows have slowed over the past six weeks, ordinary stock purchases remain firm and structured product issuance has risen, indicating a change in investment vehicle preference rather than a decline in retail demand. The issuance volume of structured products linked to Samsung Electronics, SK Hynix, and the KOSPI 200 index has nearly tripled since its May low, reaching 3.4 trillion won and 4.3 trillion won respectively in July before easing in August.