The South Korean benchmark index posted its largest decline in over four months, driven by a sharp sell-off in chip stocks. South Korea's KOSPI closed down 10.84%, recording its worst single-day performance since March 4, 1998.

The South Korean stock market fell sharply on Tuesday, leading a broader sell-off in Asian chip stocks. The steep decline mirrored a widespread downturn in U.S. technology and semiconductor shares.

A Maybank analyst noted on Tuesday, "The Nasdaq fell overnight, as markets were again rattled by concerns over excessive AI spending. Additionally, there may be some anxiety ahead of key central bank decisions this week."

Analysts at Seoul-based Mirae Asset Securities also added that the KOSPI's drop reflects market worries about intensifying competition and potential shifts in the global memory chip supply chain.

To curb the volatility, the exchange operator triggered two circuit breakers on the KOSPI and implemented similar brief trading halts on the smaller, tech-heavy Kosdaq index.

The decline was largely driven by major memory chip producers Samsung Electronics and SK Hynix, which together account for roughly half of the KOSPI's total market capitalization.