South Korean equities experienced a sharp sell-off from their record highs as investors renewed concerns about an overextended rally, leading to heavy selling in major chip stocks.

The benchmark Kospi index fell by as much as 4.8% at one point, with shares of Samsung Electronics and SK Hynix both dropping more than 5%.

Due to a sharp decline in futures prices, the Korea Exchange briefly suspended program selling, reactivating a market protection mechanism that has been used more frequently this month.

Foreign investors were net sellers of over 2 trillion won (approximately $1.3 billion) worth of Kospi shares during morning trading, while retail investors increased their positions.

This latest pullback follows a month where the benchmark index resumed its upward trend and repeatedly set new all-time highs, breaking the 9,000-point milestone for the first time as investors looked past turmoil related to conflict involving Iran.

Lee Jae Mahn, a strategist at Hana Securities in Seoul, noted that the market has shown several signs of overheating in recent days, including the valuation of SK Hynix becoming more expensive than that of Samsung Electronics.

Lee Jae Mahn stated, "For the Kospi to rise further from here, Samsung's share price gains should outpace those of SK Hynix," as Samsung's second-quarter profit is expected to surpass that of SK Hynix.

In Monday's U.S. trading, sentiment toward high-flying technology stocks became shaky, with shares of SpaceX declining, while market focus shifted to the upcoming quarterly earnings report from memory chip maker Micron Technology.

Pepperstone Group strategist Dilin Wu commented, "Micron Technology's earnings this week are the real test," adding that "Strong data has direct implications for Samsung and SK Hynix—the numbers will tell you if the hardware side of this trade still has momentum."

The Kospi's recent sharp decline highlights the increasing volatility in what has been the world's best-performing major stock index this year.

Leveraged exchange-traded funds linked to these chipmakers have amplified price swings, and South Korea's top financial regulator has previously expressed regret over approving these high-risk products.

Lee Bok-hyun, governor of the Financial Supervisory Service, indicated during a briefing on Monday that officials are assessing stabilization measures to limit the potential negative impact from the extreme volatility of ETFs tracking Samsung Electronics and SK Hynix.

Prior to Tuesday's decline, shares of SK Hynix had risen more than 2% for eight consecutive trading sessions.

Ha Seok-keun, chief investment officer at Eugene Asset Management in Seoul, noted, "The selling appears to be driven primarily by profit-taking after a sharp recent rebound, as the market had become increasingly overbought," adding that "High retail leverage and margin balances likely amplified the decline, making the market more sensitive to negative catalysts."