South Korea’s stock market has experienced unprecedented volatility amid a surge of enthusiasm tied to artificial intelligence (A.I.) developments, followed by a dramatic downturn that erased trillions of dollars in value within days. The benchmark KOSPI index, which nearly doubled in the first half of the year, has become a focal point for both optimism and alarm, reflecting broader investor reactions to the global A.I. boom.

The rally was largely propelled by two major chipmakers, Samsung Electronics and SK Hynix, whose memory chips play a critical role in A.I. data centers. These companies constitute over half the total market capitalization of the KOSPI. Encouraged by bullish statements from international technology leaders such as Microsoft and Amazon regarding increased data center investments, the market surged, with the KOSPI reaching an 18 percent gain in a single day at one point. This rapid rise positioned the market as one of the world’s best performers, surpassing other major indexes and briefly making South Korea’s equity market the world’s sixth largest by capitalization.

However, following this peak, the market witnessed sharp reversals. Over a brief span, the KOSPI fell by approximately 40 percent, wiping out more than $2 trillion in value and prompting regulators to intervene repeatedly by imposing mandatory trading halts. Despite sustained positive earnings and strong demand reported by Samsung and SK Hynix, their share prices plummeted before rebounding sharply in late trading sessions.

The sharp ups and downs have sparked significant public concern in South Korea. Millions of retail investors, motivated by government campaigns encouraging stock market participation as a means of shifting household wealth away from real estate, suffered substantial losses. Many were drawn into high-risk leveraged exchange-traded funds (ETFs) focused on semiconductor stocks, which magnified both gains and losses. These products were launched shortly before local elections and have been a contentious issue, with critics arguing they exacerbated the market’s turbulence. Lawmakers and civic groups likened the market dynamics to a high-stakes gamble, comparing it figuratively to the popular television drama “Squid Game,” underscoring the high financial and emotional toll on individual investors.

The volatility has also become a political challenge for President Lee Jae Myung, who had publicly championed the market’s growth and hailed A.I. as a transformative force comparable to “discovering fire anew.” As the market fluctuated wildly, his approval ratings declined, and he faced criticism for overstating the market’s stability. Amid the turmoil, finance officials have apologized for insufficient risk assessments before approving leveraged ETF products and have emphasized that global uncertainties about A.I. related spending have also impacted markets worldwide.

Analysts have noted the unusual nature of the KOSPI’s behavior, describing it as resembling trading patterns more typical of speculative meme stocks or cryptocurrencies than a major equity index. As regulators implement emergency measures to curb volatility, the situation highlights the risks involved in rapidly evolving technological markets and the challenges governments face balancing innovation-driven growth with investor protection.