World's best-performing market Kospi index enters bear market: Can South Korea's selloff hit Indian stock markets?

South Korea's Kospi, the world's best-performing equity market in 2026, extended its sharp correction on Tuesday, falling another 5% to 6,448.86. The benchmark index has now tumbled more than 31% from its June peak of 9,386, entering the bear market territory after one of the strongest AI-driven rallies seen this year.

The latest decline comes after the Kospi surged to record highs on the back of an extraordinary rally in technology stocks. Despite the sharp correction, the benchmark index is still up more than 50% so far in 2026.

The rally had far exceeded expectations. Just a year ago, South Korean President Lee Jae Myung had set a 5,000-point target for the Kospi, a goal many considered ambitious at the time. Instead, the benchmark soared past the 9,000 mark, fuelled by enthusiasm around artificial intelligence, while Lee maintained that South Korean equities remained undervalued.

The recent selloff has been driven primarily by weakness in South Korea's heavyweight semiconductor companies. Samsung Electronics and SK Hynix, which together account for nearly half of the Kospi's weight and contributed around two-thirds of the index's gains this year, witnessed sharp declines, dragging the broader market lower.

South Korea's Finance Minister Koo Yun-cheol last week said authorities were closely monitoring risks that could further increase market volatility. According to the finance ministry, the recent swings have been driven by profit booking by foreign and institutional investors, portfolio rebalancing, and changing expectations around the global artificial intelligence sector. The remarks followed a meeting between the finance minister, the central bank governor and heads of financial regulators.

The ministry also warned that the market's increasing concentration in semiconductor stocks has amplified volatility.

"Increasing concentration in the semiconductor sector has become a factor raising financial market volatility, with the impact of fluctuations in the chip sector on the whole stock market growing," the ministry said in a statement.

Adding to the concerns, Ruchit Thakur, Market Analyst at VT Markets, said the correction reflects multiple global and domestic factors.

"The KOSPI's recent decline was driven by several factors: profit-booking after a strong AI-fueled rally, especially in semiconductor stocks like SK Hynix and Samsung Electronics; concerns over stretched AI-related valuations prompting foreign investors to book profits; rising oil prices and global risk aversion due to Middle East tensions, including worries around the Strait of Hormuz; and heavy foreign institutional selling that triggered extreme volatility and trading halts," Thakur said.

According to Thakur, the immediate impact on India is likely to be driven more by investor sentiment than by fundamentals.

He said Asian markets typically move together during periods of heightened global risk aversion, which could trigger some short-term selling by foreign institutional investors (FIIs) in Indian equities. However, strong domestic institutional investor (DII) inflows are expected to provide a cushion against deeper declines.

Thakur also noted that Indian IT stocks could witness mild pressure if the selloff in Korean technology stocks signals broader concerns over global AI-related spending.

However, he believes the bigger risk for India remains crude oil rather than the correction in South Korea's equity market.

"The KOSPI drop is likely to weigh on Indian sentiment more than fundamentals. Since Asian markets tend to move together during risk-off periods, India could see some short-term FII selling as global funds turn cautious, though strong DII support should help cushion the fall. Indian IT stocks may face mild pressure if the Korean tech pullback signals broader concerns about global AI spending.

That said, oil prices pose a bigger risk to India than KOSPI itself, as Middle East-driven crude increases raise import costs, pressure ...