South Korea’s benchmark KOSPI index slid below the 2,500 threshold on Jan. 31, as concerns mounted over the rise of Chinese AI startup DeepSeek and the U.S. Federal Reserve’s decision to keep interest rates unchanged.

The index hit an intraday low of 2,498.80, breaching the 2,500 level for the first time since Jan. 15, when it bottomed out at 2,493 before closing at 2,496.81.

The won weakened against the U.S. dollar, trading at 1,455.50 won per dollar, up 0.66% from the previous session. It marked the first time the currency crossed the 1,450 level since Jan. 18.

As of 1:08 p.m., the KOSPI was down 1.36% at 2,502.42, while the tech-heavy KOSDAQ fell 0.45% to 725.43. The KOSPI had opened slightly lower at 2,534.33, down 0.10%, but losses deepened throughout the session.

Foreign investors offloaded 1.09 trillion won ($870 million) worth of shares on the KOSPI and 23.1 billion won on the KOSDAQ.

A screen at Hana Bank’s headquarters in central Seoul shows the KOSPI index and exchange rates on Jan. 31, 2025./Yonhap News

Semiconductor stocks, a key driver of the South Korean market, bore the brunt of the sell-off. DeepSeek’s reported ability to deliver ChatGPT-like performance using low-cost, low-power chips rattled the sector.

SK Hynix plunged 9.59% to 199,800 won, slipping below the 200,000 won mark. The stock initially dropped more than 10% and extended losses to 11.86% shortly after the market opened. The chipmaker, a supplier of high-performance HBM3E chips to Nvidia, faced sharp losses amid fears over DeepSeek’s competitive offerings.

Nvidia shares had fallen 17% on Wall Street amid similar concerns, triggering a global sell-off in AI-related semiconductor stocks.

HANMI Semiconductor, a peer of SK Hynix, declined 6.55% to 112,700 won. Other semiconductor stocks, including Techwing (-9.49%), DI (-6.36%), Advanced Process Systems (-7.29%), and AUROS Technology (-2.19%), also posted steep losses.

Companies previously buoyed by the AI boom also saw sharp declines. HD Hyundai Electric dropped 9.78%, Hyosung Heavy Industries fell 12.70%, and LS Electric slid 7.38%. GAON Cable and Cheil Electric were down 11.32% and 10.55%, respectively.

Samsung Electronics, which is less dependent on Nvidia’s supply chain and has a strong foothold in lower-cost chips, fared better, dipping 2.61% to 52,300 won.

Conversely, AI service providers NAVER and Kakao saw gains, rising 6.13% and 6.85%, respectively.

Kim Dong-won, head of KB Securities’ research center, said the market volatility is likely a short-term reaction to DeepSeek’s rise and the impact on U.S. stocks.

“While DeepSeek’s low-cost AI chips may disrupt the market in the near term, they also signify the expansion of the AI ecosystem, which could ultimately benefit semiconductor companies in the long run,” Kim said.