But beneath the decline, the session looked less like a broad sell-off than a wholesale rotation in market drivers, as crowded artificial intelligence stocks that had driven the recent rally gave way to new market leaders.
The split told the story. While the main board fell, the junior KOSDAQ jumped more than 2 percent to around 1,050, as money rotated rather than fled. The artificial intelligence (AI) and technology names that had powered the record-breaking advance reversed hard: LG Electronics, a darling of the recent surge, crashed more than 16 percent to around 328,000 won ($214.5), the day's marquee casualty, with SK Hynix, Samsung Electronics, and Naver all lower. Foreign investors sold nearly 7 trillion won.
Where the money went was the day's real news. Department store stocks led the entire market on a wealth-effect wager, as investors bet that record equity gains, reinforced by the ruling Democratic Party (DP)'s sweep in the local elections, will feed consumer spending. Shinsegae soared nearly 16 percent to around 659,000 won and Hyundai Department Store rose about 15 percent. Insurers followed, with Samsung Fire & Marine Insurance up about 14 percent to around 730,000 won.
On the KOSDAQ, small-cap semiconductor-equipment and materials makers surged, with Eugene Technology and Duksan Hi-Metal both jumping roughly 30 percent, as investors hunted the next leg of the chip story beneath the megacaps.
The trigger for the regional retreat was geopolitical. Oil held elevated after Iran struck Kuwait's airport and the United States launched strikes on Qeshm Island, a marked escalation around the Strait of Hormuz that sent investors out of this year's crowded winners and toward hedges and alternatives. Wall Street's overnight losses compounded the move.
China's Shanghai Composite eased about 0.75 percent to around 4,051, weighed by the same risk-off mood even as oil climbed, but the surprise lay in where the oil money did not go. Despite the Hormuz escalation, China's big state-owned producers fell, with PetroChina slipping about 2 percent and CNOOC dropping more than 2 percent as investors took profits after their recent run.
The oil bid narrowed instead to the speculative end, where Shanghai Petrochemical hit its 10 percent daily limit, a sign retail money chased the high-beta refiner rather than the blue-chip majors. With Beijing still awaiting direction from its Politburo meeting expected in July, the mainland remained the region's quiet laggard.
Japan's Nikkei 225 fell nearly 1.5 percent to around 67,471, pulling back from Wednesday's first-ever close above 68,000 in a classic bout of profit-taking, though the retreat was not led by the chip names. Tokyo Electron, the engine of the previous day's record, extended its run, rising nearly 4 percent to around 63,200 yen.
The clear winner was defense: Mitsubishi Heavy Industries climbed about 4 percent to around 3,700 yen as the intensifying Middle East conflict lifted military and heavy-industry names, the same impulse driving defense buying worldwide. Oil names were mixed, with INPEX, Japan's largest oil and gas producer, slipping nearly 2 percent to around 3,600 yen even with crude elevated, leaving Tokyo's decline a broad consolidation rather than the collapse of any single theme.
Thursday was a geopolitical risk-off session that doubled as a rotation. The year's most crowded winners, Korea's AI and technology megacaps, gave back ground while money sought hedges and alternatives: defense in Japan, domestic consumer and insurance names in South Korea, and speculative oil and small-cap chip plays on the fringes.
The AI trade did not break so much as step aside for a session. The questions from here are whether the Middle East escalation deepens, whether the Bank of Japan moves this month, and whether South Korea's rotation into consumer names has the staying power its sudden violence this week suggests it might.
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