Seoul, Nov 5 (NationPress) Following a remarkable surge over the past several months, South Korea's stock market experienced a significant downturn on Wednesday, largely driven by concerns regarding the overvaluation of technology stocks amidst an ongoing artificial intelligence (AI) boom.

In response to these valuation fears, the nation's benchmark index, the Korea Composite Stock Price Index (KOSPI), plummeted by 117.32 points, or 2.85 percent, settling at 4,004.42 after briefly dipping to a low of 3,867.81 during the day. The total market capitalisation on the primary exchange fell by 97 trillion won (approximately US$67 billion), as reported by Yonhap news agency.

The market collapse prompted a trading halt for five minutes during the morning session.

This downturn followed nearly an 80 percent rally in the stock market since April, making it the top performer among major economies, primarily due to gains in sectors such as chip manufacturing, defense, and shipbuilding.

Samsung Electronics, a leading company by market value, has seen its shares rise by nearly 80 percent, while its competitor, SK Hynix, nearly tripled in valuation.

According to a report from Samsung Securities, while AI-driven stocks have propelled the bull market in the United States, there are increasing concerns regarding when these companies will begin to see profits from their substantial investments. The local market followed Wall Street's decline, largely due to profit-taking activities in the tech sector.

Foreign investors continued their selling trend from the previous session, offloading a net of 2.5 trillion won in local stocks—marking the largest sell-off since August 13, 2021.

Conversely, retail investors purchased a net of 2.5 trillion won. The previous night, U.S. stock indices ended lower, with the S&P 500 decreasing by more than 1 percent and the tech-heavy Nasdaq dropping by over 2 percent.

Concerns regarding a potential tech bubble lingered after leaders from Goldman Sachs and Morgan Stanley cautioned that the stock market might be entering a correction phase.

Local analysts suggest that the KOSPI may indeed be entering a phase of correction, but they do not anticipate it to be prolonged.

"While market volatility may increase in the short term, this does not signify a shift into a medium- to long-term correction phase," stated Lee Jae-won, an analyst with Hana Securities.

Lee emphasized that the local stock market has several factors that could foster upward momentum, including an impending revision of the Capital Markets Act designed to enhance shareholder returns.

Samsung Securities expressed optimism regarding the future of South Korean companies, particularly its chip manufacturers, which are expected to boost the KOSPI in the coming period.

"The earnings outlook for domestic companies remains favorable, alongside an increase in exports and improved profitability for semiconductor products noted in October. Strong profit momentum is anticipated to persist in the Korean stock market," the brokerage added.