SynopsisSouth Korea's Kospi slumped as much as 8%, briefly triggering a sidecar trading curb, as a Bank of Korea rate hike, a sharp sell-off in AI chip giants Samsung Electronics and SK Hynix, and concerns over leveraged single-stock ETFs rattled investor sentiment despite the index's strong 2026 gains.APSouth Korea's Kospi, the world's best-performing major equity benchmark in 2026, slumped up to 8% on Thursday, briefly triggering a sidecar trading curb as investors fled AI-linked stocks amid a rate hike and mounting concerns over leveraged single-stock ETFs.Kospi dropped to a low of 6,731 on Thursday, snapping a two-session gaining streak. The index continues to remain in bear territory, as it has now fallen more than 28% from its June peak of 9,386. The recent selloff in South Korea’s stock market comes after a skyrocketing rally in tech stocks that pushed Kospi sharply higher. Despite the latest crash, the index is still up nearly 58% in 2026 so far. Here are three key reasons why South Korea’s Kospi is plunging today.Bank of Korea raises rates for first time in 3 yearsSouth Korea's central bank on Thursday announced its first rate hike in more than three years, aiming to tighten the money supply to combat inflation worsened by the intensifying war in the Middle East and slow the growth of the country's high household debt. Following a monetary policy meeting, the Bank of Korea raised its benchmark policy rate from 2.5% to 2.75% in the first hike since January 2023.Rising interest rates affect the stock market by typically making borrowing more expensive. This likely bears an impact on a company’s profits, which in turn affects its stock price. Also read: BOK hikes rates for first time in 3-1/2 years, signals moreAI rally continues to fizzle outMemory chip bellwethers SK Hynix and Samsung Electronics, which make up just over half of the benchmark Kospi, crashed as much as 12.5% and 10%, respectively, to push the stock market sharply lower. The Kospi’s performance is closely tied to two chip giants, Samsung Electronics and SK Hynix, which together have contributed roughly two-thirds of its gains this year. As these stocks crashed, so did the Kospi. Samsung shares have fallen around 24% in one month, while SK Hynix plunged more than 21%.Single-stock leveraged ETFsSouth Korea's top financial regulator is set to announce new measures on single-stock leveraged exchange-traded funds soon, its chief said amid worries about the effects of such instruments on financial market stability.The Financial Services Commission will "closely inspect and review improvement measures" on the ETFs soon, Chairman Lee Eog-weon said in a radio interview on ‌Thursday, when asked ⁠how the ⁠product affected the high volatility of South Korea's stock market. "This is basically a high-risk product," Lee said. "We have explained to investors its risks." When asked whether the regulators are temporarily suspending trading in the product, Lee said such a measure could cause a "bigger side-effect" in markets. Leveraged ⁠ETFs have ‌been blamed for the massive swings in South Korea's stock market as most of them are tied to Samsung Electronics and SK Hynix, which ⁠together now account for just over half of the benchmark Kospi.Also read: South Korea to unveil new measures for single-stock leveraged ETFs amid volatility concerns(With inputs from agencies)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless(You can now subscribe to our ETMarkets WhatsApp channel)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless