South Korea's primary stock index declined on Wednesday, as semiconductor shares continued their downward trend and market risk appetite weakened following a U.S. military strike on Iran.

The Kospi index fell as much as 3.6% during early trading, following an 8.2% gain on Tuesday. The benchmark index had plunged 8.3% on Monday, triggering a 20-minute halt in spot market trading.

This extreme volatility is becoming increasingly common as Samsung Electronics Co Ltd and SK Hynix Inc face turbulence affecting AI-related stocks; these two companies together account for more than half of the index's total market capitalization.

Volatility has been further amplified by the growing popularity of leveraged exchange-traded funds (ETFs) linked to Samsung Electronics Co Ltd and SK Hynix Inc, which can magnify daily price movements. The Kospi 200 Volatility Index surpassed 90 for the first time on Tuesday, setting a new record.

Arjun Jayaraman, a portfolio manager at Causeway Capital Management, stated that significant intraday swings are likely to persist. He noted that a substantial amount of highly speculative, leveraged capital has been flowing into the South Korean market.

He indicated that market volatility in South Korea is expected to remain above historical levels, driven by the new leveraged ETFs and increased participation from retail investors using margin financing.