Stock markets in Taiwan and South Korea witnessed sharp declines on Monday, marking a significant reversal for two economies that had recently emerged as major beneficiaries of the global artificial intelligence (AI) boom. The sell-off has raised questions about the sustainability of the rapid gains driven by enthusiasm surrounding AI and semiconductor companies.

Both markets had recently surpassed India in global stock market rankings, propelled by strong investor demand for technology and chip-related stocks.

Sharp Fall Across Asian Markets

The downturn spread across several major Asian markets, with South Korea’s KOSPI index plunging by as much as 9% during trading. The decline was severe enough to trigger circuit breakers and temporary trading halts.

Taiwan’s benchmark stock index dropped up to 6%, recording its steepest fall in months, while Japan’s Nikkei index slipped nearly 4%. The broad-based weakness reflected a sudden shift in investor sentiment toward high-growth technology stocks.

Semiconductor Giants Lead the Decline

The companies that had driven the AI rally were among the hardest hit during the correction. Shares of Samsung Electronics and SK Hynix, South Korea’s leading semiconductor firms, fell by more than 10%.

In Taiwan, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker and a key supplier to global technology companies, also recorded significant losses. Investors reacted negatively after U.S. chipmaker Broadcom issued a weaker-than-expected outlook, raising concerns about whether expectations for AI-related earnings growth had become overly optimistic.

Global Factors Add Pressure

Market sentiment was also affected by stronger-than-expected economic data from the United States, which fuelled speculation that the Federal Reserve could maintain higher interest rates for longer. Such conditions typically weigh on technology stocks, whose valuations are often linked to future growth expectations.

Adding to investor concerns were rising geopolitical tensions in the Middle East. Reports of military action involving Israel and Iran pushed oil prices higher, increasing fears of renewed inflationary pressures across global markets.

Lessons for Emerging Markets

The correction highlights the risks associated with markets heavily concentrated in a single growth theme. While Taiwan and South Korea benefited enormously from investor enthusiasm around AI and semiconductor manufacturing, the same concentration amplified losses when sentiment turned negative.

Despite the recent volatility, many analysts remain optimistic about the long-term prospects of AI infrastructure, semiconductor manufacturing, and data centre investments. However, the latest sell-off serves as a reminder that even the strongest market rallies can face sharp corrections when expectations outpace reality.

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