South Korea’s financial watchdog is considering stricter curbs on retail trading of single-stock leveraged exchange-traded funds (ETFs), including investment caps for individual investors, as a sharp selloff in the country’s semiconductor heavyweights intensified concerns over market volatility and speculative trading.

Lee Eog-weon, chairman of the Financial Services Commission (FSC), said authorities are reviewing additional measures to cool demand for the high-risk investment products, according to local media reports.

Speaking at a meeting with brokerage firms and asset managers in Seoul on Tuesday, Lee said regulators could introduce a ceiling on the total amount retail investors are allowed to invest in single-stock leveraged ETFs if market conditions warrant further intervention.

The proposal would mark another step in South Korea’s efforts to curb speculative trading in products that have surged in popularity among individual investors seeking amplified returns from the country’s dominant technology stocks.

The FSC last week tightened regulations by raising the minimum cash deposit required for retail investors to trade single-stock leveraged ETFs, many of which are tied to Samsung Electronics and SK Hynix, the world’s two leading producers of memory chips.

The regulatory review comes as South Korea’s equity market experiences heightened turbulence, driven by a sharp reassessment of the global artificial intelligence investment theme that has propelled semiconductor stocks over the past two years.

Samsung Electronics shares plunged as much as 9.7% in Seoul on Tuesday after investors grew increasingly concerned that the company could lose market share in memory chips to Chinese rival ChangXin Memory Technologies (CXMT). Investor sentiment was also weighed down by mounting concerns over the financial risks associated with the massive wave of AI infrastructure spending, prompting a broader reassessment of semiconductor valuations.

SK Hynix, another major beneficiary of the AI-driven surge in demand for high-bandwidth memory (HBM) chips used in advanced AI processors, fell as much as 11.2% in Seoul. The decline followed a 10% drop in the company’s recently listed American depositary receipts (ADRs) on the Nasdaq on Monday, pushing the shares below their IPO price and underscoring the global nature of the selloff.

The steep declines indicate that sentiment has quickly shifted across AI-linked equities. Investors who had aggressively piled into chipmakers amid expectations of sustained AI spending are increasingly questioning whether the industry’s unprecedented capital expenditures can continue generating returns at a pace sufficient to justify elevated valuations.

Growing competition from Chinese semiconductor manufacturers has added another layer of uncertainty, particularly as Beijing accelerates efforts to build a self-sufficient chip industry.

Single-stock leveraged ETFs have become a favored vehicle for South Korea’s retail investors, who are among the world’s most active participants in equity markets. Unlike traditional ETFs that track diversified indexes, these products are designed to deliver a multiple of the daily performance of a single stock, using derivatives and leverage to magnify gains. The same structure, however, can amplify losses just as rapidly when markets reverse, making them particularly vulnerable during periods of sharp volatility.

Regulators have become increasingly concerned that concentrated retail positions in leveraged ETFs linked to a handful of large-cap technology stocks could exacerbate market swings. As investors rush to buy or sell these products, fund managers often need to rebalance their derivative positions, creating feedback loops that can intensify price movements in the underlying shares.

The latest regulatory scrutiny also reflects broader concerns about financial stability. South Korea has repeatedly introduced measures in recent years to curb excessive risk-taking by retail investors across various asset classes, particularly when speculative activity threatens orderly market functioning.

The semiconductor sector occupies an outsized role in South Korea’s economy and financial markets. Samsung Electronics and SK Hynix together account for a significant share of the benchmark KOSPI index, meaning sharp movements in their shares can have an outsized impact on overall market performance, investor sentiment and foreign capital flows.

After years of rewarding companies building AI infrastructure, investors are now scrutinizing execution risks, rising competition and the sustainability of record capital spending. That reassessment has injected fresh volatility into semiconductor stocks while prompting regulators to monitor whether leveraged investment products could amplify market stress during periods of rapid price swings.

Global equities fell to their lowest level in a month on Tuesday as investors accelerated a selloff in semiconductor stocks amid mounting concerns over China’s rapidly advancing chip industry, the growing cost of financing the artificial intelligence boom, and increasing expectations that the U.S. Federal Reserve could raise interest rates as early as this week.

The broad risk-off move was led by Asian technology shares, where heavily valued semiconductor companies suffered steep losses after months of extraordinary gains, while lower oil prices and shifting geopolitical risks added another layer of uncertainty for investors.

The MSCI All Country World Price Index fell 0.5% to its lowest level since June 29, reflecting broad weakness across global equity markets.

The sharpest declines came from South Korea, where the benchmark KOSPI tumbled more than 10% to a three-month low, triggering a circuit breaker during trading. The benchmark is now on course for its worst monthly performance on record, surpassing losses recorded during the 1997 Asian financial crisis.

The correction marks a dramatic reversal for one of the world’s best-performing equity markets. The KOSPI had more than tripled over the 12 months through June as investors poured money into AI-linked semiconductor stocks. Since reaching that peak, however, the index has lost more than one-third of its value as investors rapidly unwind leveraged positions and take profits.

Chipmakers were at the center of the selloff.

Shares of SK Hynix and Samsung Electronics each plunged more than 12%, extending a sharp correction that has erased a significant portion of their AI-driven gains.

The weakness spread beyond Asia. U.S. chipmakers Nvidia and Micron Technology fell in premarket trading after Nvidia had already lost 5% overnight.

Investor sentiment toward Nvidia deteriorated after The Wall Street Journal reported that the company was discussing providing roughly $250 billion in financing guarantees for OpenAI as part of a massive data center expansion project.

The report reinforced growing concerns that the next phase of the AI race may require enormous capital commitments from technology companies, potentially weighing on profitability even as demand for AI infrastructure remains robust.

Analysts say investors are increasingly scrutinizing whether the industry’s extraordinary earnings growth can justify soaring valuations and escalating capital expenditure.

“You’ve seen the companies paying for AI, the hyperscalers, not really participating because of concerns about the cost and the degree of leverage that needs to be taken on. And now we’re seeing questions over the profitability of the semiconductor space, particularly in Asia,” said Dorian Carrell, head of multi-asset income at Schroders.

“The broader AI story has some way to go, but these kinds of (profit) growth rates are rarely sustained. We think that it’s healthy that the market’s questioning these things.”

Fresh competitive pressure from China also weighed heavily on semiconductor stocks.

Dutch chip equipment manufacturer ASML dropped 8.5% after The Information reported that China has begun manufacturing domestically developed immersion deep ultraviolet (DUV) lithography machines, technology that ASML has long dominated globally.

The development raises the prospect that China is making meaningful progress toward reducing its reliance on Western semiconductor equipment amid ongoing U.S. export restrictions.

Investor concerns were amplified after Chinese memory chipmaker CXMT Corp. completed an $8.6 billion stock market listing on Monday. The company ended its first trading session as China’s most valuable listed company, highlighting investor confidence in Beijing’s efforts to build a self-sufficient semiconductor industry.

The developments have intensified fears that Chinese companies could eventually challenge the dominance of established global semiconductor manufacturers across key segments of the industry.

European equities proved comparatively resilient.

Strong corporate earnings from Unilever and Mercedes-Benz helped offset weakness in technology shares, allowing European markets to outperform their Asian counterparts.

Meanwhile, investors continued to monitor the outlook for U.S. monetary policy ahead of the Federal Reserve’s interest rate decision on Wednesday. Markets are pricing roughly a 35% probability that policymakers will raise interest rates by 25 basis points this week, with expectations for further tightening continuing to support the U.S. dollar.

The euro remained under pressure, trading below the $1.14 level at $1.1370, while the Japanese yen hovered near a four-decade low at 163.83 per dollar. The yen’s weakness has heightened speculation that Japanese authorities could intervene in foreign exchange markets if the Bank of Japan keeps interest rates unchanged and the currency depreciates further.

“If BOJ communication is not hawkish enough and USD/JPY heads higher, traders should anticipate an official response, including verbal intervention, rate checks, or even direct FX market intervention, perhaps on Friday,” said Thierry Wizman, currency and rates strategist at Macquarie Group.

Geopolitical developments also remained a key driver of market sentiment.

Oil prices extended their sharp decline after President Donald Trump said the United States was having “good talks” with Iran, fueling optimism that negotiations could reduce tensions following Washington’s suspension of air strikes over the weekend.

Brent crude futures fell more than 3% to $85.55 per barrel, extending Monday’s nearly 9% decline as traders reduced the geopolitical risk premium built into oil markets.

The easing in oil prices contributed to a decline in U.S. Treasury yields, with the benchmark 10-year yield falling about four basis points to 4.64% on Monday. However, shorter-dated Treasury yields remained relatively stable, reflecting investor caution ahead of the Fed’s policy announcement.

According to Wizman, developments in the Middle East remain central to the global economic outlook because of their influence on energy prices and inflation.

“The U.S.-Iran war, by propelling the price of crude oil, remains the most important determinant of what will happen to the global economy … and, by extension, what informs central bank policy outlooks, at the margin,” he said.

“We expect that the (Fed) this week will wish to adopt a tightening bias.”

The combination of rising interest rate expectations, uncertainty over AI-related spending, growing Chinese competition in semiconductors and lingering geopolitical risks has prompted investors to reassess some of the market’s biggest winners.

While enthusiasm surrounding artificial intelligence remains intact over the long term, analysts say the recent volatility reflects a shift toward greater scrutiny of valuations, financing requirements and the sustainability of earnings growth across the sector.