KOSPI Plunges 5.72% with Sidecar Activation: Impact of Middle East Risks and AI Profitability Concerns

Increased Volatility in the Domestic Market Driven by Global Shocks

As of July 25, 2026, the domestic stock market is experiencing an unprecedented level of volatility. In the previous trading session, the KOSPI index closed with a 5.72% drop, prompting the activation of a sell-side sidecar. This mechanism temporarily halted the execution of program sell orders for five minutes to mitigate market shock, indicating a massive and sudden influx of selling pressure. This sharp decline is analyzed as the result of a complex interplay between global macroeconomic uncertainties and sector-specific risks.

Nasdaq Big Tech Earnings and Doubts Regarding AI Profitability

The most significant downward pressure originated from the U.S. market, particularly the weakness in Nasdaq-listed tech stocks. Following the recent earnings reports from major big tech companies like Alphabet and Tesla, the market began to question the visible short-term profitability relative to the massive capital expenditures (CAPEX) invested in artificial intelligence (AI) infrastructure.

• Nasdaq Index Down 2.15%: A wave of profit-taking centered around large-cap tech stocks led to a substantial correction across the broader index.
• Synchronization of Domestic Tech Stocks: Domestic top-cap semiconductor stocks, such as Samsung Electronics, which were considered key beneficiaries of the AI infrastructure expansion, all reversed to a downtrend, leading the overall index decline.
• Foreign Capital Outflow: A large-scale net selling trend by foreign investors continued, further dampening investor sentiment.

Escalation of Middle East Geopolitical Risks and Macro Uncertainty

Alongside concerns over AI profitability, the intensifying geopolitical conflict in the Middle East is fueling global risk aversion. As the crisis surrounding Iran escalates, global oil prices, including Brent crude, continue their upward trajectory.

Rising oil prices could stall the disinflationary trend, which in turn affects the Federal Reserve's monetary policy path. With a strong wait-and-see attitude prevailing ahead of the Fed's interest rate decision, renewed inflation concerns have relatively lowered the attractiveness of risk assets such as equities. Consequently, the cryptocurrency market, including Bitcoin, has also observed a downtrend driven by macroeconomic uncertainty.

Market Participant Trends and Key Points to Watch

Amid the shock of the steep index decline and the sidecar activation, responses from market participants have been mixed. Sentiment advocating for an exit from the domestic market and a portfolio shift toward U.S. equities is spreading among some investors. In fact, the capital inflow from domestic retail investors buying U.S. stocks has surged compared to the previous month.

To navigate short-term market volatility, investors should closely monitor the following indicators:

• Big Tech Earnings Reports: Whether concrete contributions from AI-related revenue can be identified in the upcoming earnings and guidance of major U.S. tech stocks.
• Macroeconomic Indicators and Oil Prices: The trajectory of oil prices influenced by changes in Middle East dynamics, and the direction of key inflation indicators such as the U.S. Consumer Price Index (CPI) tied to them.
• Changes in Foreign Supply and Demand: The stabilization of foreign investors' selling pressure in the KOSPI market and the stabilization of the exchange rate.

In periods of maximized market volatility, a fundamental, data-driven approach is essential.