South Korean shares were hammered by growing concerns over spending linked to the artificial-intelligence boom, leading the region's stock markets lower.

Chip and technology stocks in Asia were dragged by sharp losses overnight for U.S. chip stocks, as investors grow increasingly concerned that high capital expenditure on artificial intelligence may not lead to profits for a long time.

"Sentiment toward the semiconductor sector was also hit by a report that a Chinese state-backed company had begun mass-producing deep ultraviolet lithography chip-making equipment, potentially increasing competition with foreign suppliers," Commerzbank Research said, referring to a report by The Information saying a Shanghai-based company started making a homegrown version of chip-manufacturing machines.

Korean markets have been hit recently by a wave of margin calls related to single-stock leveraged exchange-traded funds. These ETFs, primarily in market heavyweights SK Hynix and Samsung Electronics, have pulled a huge wave of retail investors into the local stock market.

As the market turns down, many of these retail investors who have borrowed to invest, are now being forced to sell their holdings, accelerating the markets' drop and adding to the volatility.

"The KOSPI rolled out of bed with its most bearish opening gap in four months," said Matt Simpson, senior market analyst at StoneX, in an email. Its decline "suggests we're in the 'despair' part of the sell-off, where traders are simply trying to rush to the exit before everyone else. And these sell-offs tend to get ugly as there are few buyers," Simpson added.

South Korea's Kospi led losses across the region and suffered its largest one-day drop since early March. The benchmark index fell 11% to close at 6023.66, with chip-making index heavyweights SK Hynix slumping 15% and Samsung Electronics dropping 13%.

The Korea stock market, which earlier this year was considered to be the world's best performing, is now more than 30% lower from its recent peak in June.

Japan's Nikkei Stock Average dropped 3.95%, with memory-chip manufacturer Kioxia Holdings sliding 18% and semiconductor manufacturing equipment maker Kokusai Electric falling 14%. Taiwan's Taiex benchmark index shed 4.65%, China's Shanghai Composite Index lost 1.2%, and Singapore's FTSE Straits Times Index was 0.1% lower.

"Investors remain concerned about the scale of AI-related spending and whether the rapid increase in [capital expenditure] would translate into sufficient returns," said Commerzbank analysts.

In energy markets, crude-oil futures fell as the pause in the U.S.-Iran conflict continued, with President Trump saying on Monday there was a "good chance that something good could happen" with Iran. The Wall Street Journal reported that Trump paused a major escalation in the military campaign against Iran amid efforts to revive diplomacy to open the Strait of Hormuz.

Front-month West Texas Intermediate crude oil futures fell 2.2% to $80.81 per barrel and front-month Brent crude oil futures dropped 2.7% to $85.94 a barrel, ICE data showed.

Write to Ronnie Harui at ronnie.harui@wsj.com

(END) Dow Jones Newswires

July 28, 2026 04:04 ET (08:04 GMT)

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