South Korean Equities Suffer Severe Reversal Amid Global AI Doubts
Kospi plunges as investors question artificial intelligence spending sustainability and valuations
1Sharp Selloff Hits Kospi
South Korea's benchmark Kospi index plunged 8% on Thursday, prompting an early trading halt during the session. The rout extended a dramatic downturn for the market, which had previously ranked as the world's top performer. Technology giants led the decline as global skepticism toward artificial intelligence expenditures rapidly expanded.
2Macro Drivers Fuel Rout
The domestic selloff mirrored Wall Street's technology declines following hotter-than-expected United States inflation data. Stubborn inflation figures revived investor fears of prolonged elevated interest rates, which increase financing expenses for capital-intensive infrastructure. Market participants increasingly worry that higher borrowing costs make sustained artificial intelligence investments harder to maintain over time.
3Chip Giants Suffer Declines
Shares of Samsung Electronics dropped 11%, while domestic memory rival SK Hynix fell 12% during Thursday's trading session. Samsung stock has lost nearly a fifth of its value recently despite forecasting a ninefold operating profit jump. Strong individual quarterly earnings failed to overcome broader market skepticism regarding future semiconductor demand.
4Rethinking Semiconductor Valuations
KB Securities analyst Mingyu Kim noted that doubts over artificial intelligence profitability are forcing investors to re-evaluate semiconductor manufacturers. Instead of rewarding long-term growth narratives, markets are treating chipmakers like commodity-driven cyclicals. Investors question the sustainability of corporate spending beyond twelve months as leading tech firms rely heavily on external financing.
5Rising Chinese Supply Pressures
Heightened competition adds significant pressure to South Korea's memory sector alongside broader macroeconomic challenges. Chinese chipmaker CXMT plans to introduce a new server-memory product before year-end, stoking industry fears of impending oversupply. Investors worry that increased production capacity from competitors could compress profit margins and drag down global memory prices.
6Foreign Outflows Erode Liquidity
According to KB Securities data, foreign investors net sold over 12 trillion won worth of South Korean equities in October. Compounding the liquidity drain, corporate share buyback programs by Samsung and SK Hynix are winding down after providing support since August. Consequently, fewer domestic buyers remain available to cushion falling stock prices.
7Historic Volatility Grips Seoul
The Kospi experienced dramatic swings throughout the year, more than doubling in the first half before tumbling 22% in July. That July drop marked the index's worst monthly performance since the 2008 financial crisis. Overall, the benchmark has lost approximately 35% since late June, becoming the worst-performing major global market.
8Search for Market Bottom
Despite steep declines across the technology sector, KB Securities views the current correction as a potential buying opportunity. Analyst Mingyu Kim indicated that the benchmark is currently seeking the second bottom of an expected W-shaped economic recovery. However, stabilizing equity prices will depend on sustained capital spending and manageable competitive pressures.