South Korea’s benchmark KOSPI index fell approximately 9.99 per cent on June 23, as investors triggered a major sell-off. It was the fifth-largest single-day percentage decline in the index’s history, and the largest points shed in a single day ever, at 910.71 points. The sharp fall also triggered a 20-minute bourse-wide trading halt after the intraday loss breached the threshold for a circuit breaker. The crash is now being referred to as “Black Tuesday” in South Korea.
The sell-off had a ripple effect across global markets. Japan’s Nikkei closed 3.6 per cent lower, and Softbank tumbled by more than 10 per cent, while the Nasdaq in the US was down by around 2 per cent. The CSI 300, Hang Seng, Shanghai Composite, and Taiex also posted declines. The selloff across Asia and the US stoked concerns over whether this was a simple market correction, or the first sign of cracks in the broader AI rally.
From a controversial tax proposal to AI euphoria
The Kospi’s fall was driven chiefly by Samsung Electronics Co and SK Hynix, whose shares tumbled 12.31 per cent and 12.47 per cent respectively. The two companies together account for more than half the index’s market capitalisation.
One section of the market attributes the drop to a controversial tax proposal on unrealised gains. The fall came on the heels of a massive rally in Asian markets, during which South Korea and Taiwan had overtaken the market capitalisation of the Indian stock market.
At a policy forum held on June 23, lawmakers from South Korea’s ruling Democratic Party of Korea, along with members of three opposition parties — the Progressive Party, the Rebuilding Korea Party, and the Social Democratic Party called for comprehensive taxation that would treat unrealised gains on stocks and real estate as taxable income, even before the underlying asset is sold. Proponents argued that taxing unrealised gains would reflect real-time wealth expansion rather than the arbitrary timing of an eventual sale.
The proposal points to what backers describe as a structural double standard: investors currently treat stock market gains as unrealised income to avoid tax, while simultaneously using those same unrealised gains as collateral to secure bank loans and hard liquidity funds that are then used to buy highly volatile, leveraged single-stock ETFs, adding further pressure to an already top-heavy market.
A separate section of market analysts argues that the AI rally has simply run too far, too fast, without adequately pricing in the uncertainty stemming from the Iran war calling it a textbook case of “irrational exuberance.” According to this view, the market has developed a dangerous immunity to geopolitical headlines, increasingly treating conflict as a contained, regional given rather than a systemic risk. Investors have also treated chipmakers as near-bulletproof, these analysts argue, while overlooking the cyclical nature of AI infrastructure spending despite repeated warnings that tech giants cannot sustain their massive capital expenditure without a corresponding rise in profit.
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The Kospi recovered 3.26 per cent on June 24, driven largely by Samsung Electronics’ announcement of a massive ₩90 trillion (around $58.6 billion) share buyback programme.