South Korea’s benchmark Kospi index collapsed 10% on Tuesday, closing at 8,203.84 after the Korea Exchange halted trading for 20 minutes when the decline breached 8%. The rout erased months of gains in a market that had doubled since the start of the year, with chipmakers Samsung Electronics and SK Hynix each falling more than 12%. Foreign investors sold nearly 5 trillion won ($3.6 billion) of Kospi shares, while leveraged retail traders, who had borrowed a record 38.5 trillion won to buy stocks, rushed to cover positions, amplifying the selloff.

Viewed from Seoul, the correction was a violent unwinding of an AI-driven concentration risk. Samsung and SK Hynix together account for 52% of the Kospi, and their extraordinary rallies had left the index vulnerable to any shift in sentiment. Strategists in the city pointed to profit booking after a 200% 12-month return, excessive retail leverage, and foreign institutional selling that had already been under way. The trigger, however, was a broader reassessment of technology valuations that began on Wall Street, where the Nasdaq had fallen 1.3% on Monday, led by declines in Alphabet, Amazon and Elon Musk’s SpaceX, which shed 16% after announcing a large bond sale.

The shockwaves travelled quickly. Japan’s Nikkei 225 dropped 3.6%, with SoftBank and Tokyo Electron among the heaviest losers. Hong Kong’s Hang Seng fell 1.8%, and European indices opened lower, with ASML down 4%. US futures pointed to further losses, the Nasdaq 100 contract off 2.5%. In India, the Sensex slid 900 points as IT stocks came under renewed pressure, though some analysts in Mumbai noted that a rotation of foreign funds away from overheated Asian tech markets could ultimately benefit Indian equities. Oil prices, which had eased on progress in US-Iran talks, provided only limited cushion, as attention shifted to the implications of higher energy costs for central bank policy.

Underpinning the global equity retreat is a rapid repricing of Federal Reserve expectations. Fed funds futures now imply a 54% probability of at least two quarter-point rate increases this year, up from 15% a week ago, as new Chair Kevin Warsh’s hawkish signalling and persistent inflation fears lift US yields. The 10-year Treasury yield climbed to 4.50%, strengthening the dollar to one-year highs and pressuring emerging-market currencies. The next test for market sentiment arrives on Thursday with the release of the US consumer inflation report for May, which economists expect to show an acceleration to 4.1% year-on-year.