South Korea's stock market went through a sharp correction over the past week as doubts over the capital and profitability of artificial intelligence investment collided with concerns that Chinese memory chipmakers are closing the technology gap. The KOSPI fell for seven straight sessions, sliding to 5,554.22 on the 15th, its lowest level in five months. It rebounded the following day after eight sessions, but recovered only part of the losses. Strong earnings at Samsung Electronics (005930.KS) failed to halt the index's decline, leaving the market focused on whether the AI investment cycle can be sustained and whether foreign selling will subside.
KOSPI Gives Up 6,000 Mark, Falls to 5,550 Range
According to the Korea Exchange on the 18th, the KOSPI closed at 7,003.74 on Oct. 2 and declined steadily thereafter. On the 13th, it ended at 6,035.35, down 5.46% from the previous session. A sell-side sidecar was triggered as the index fell below 6,000 during the session. The next day, the 14th, the KOSPI closed at 6,008.81, barely holding the 6,000 line, but the slide did not stop. On the 15th, the index plunged 7.57% to close at 5,554.22. Compared with the Oct. 2 close, that marks a drop of 1,449.52 points, or about 21%, over seven sessions. Selling was heavy enough that day to trigger circuit breakers on both the KOSPI and KOSDAQ markets.
The KOSPI fell more sharply than major overseas markets during this week's rout, and one reason cited is the lack of buyers to absorb foreign selling. Foreign investors had net sold more than 200 trillion won on the main board on a cumulative basis this year through the 13th. At the same time, large share buybacks by Samsung Electronics and SK hynix (000660.KS) were nearly complete, and retail investor sentiment had weakened, leaving little support to absorb the foreign selling.
While the broader market was tumbling, some watchlist stocks whose delisting procedures had been suspended for failing to meet market capitalization requirements surged instead. In the week after the Korea Exchange announced the reprieve on the 7th, 35 of the 49 affected stocks, or 71.4%, rose in price, excluding Hanjoo A.R.T. Bioinfra (199730.KQ) and Hyungji I&C (011080.KQ) roughly doubled in a short period. The gains are read as short-term speculative money rushing in on the back of the delisting reprieve.
Funding Strain on AI Spending, Plus Chinese Memory Challenge
What sparked this week's market plunge was concern over the capital and profitability of AI investment. Broadcom Chief Executive Hock Tan recently cited a shortage of capital at a conference as the biggest constraint on the AI industry. Intel Chief Executive Lip-Bu Tan also pointed to rising capital costs and investor demands for return on investment. Concerns spread that with enormous sums flowing into AI infrastructure, uncertain timelines for recouping those investments and higher funding costs could make it harder to expand spending.
The technology push by China's ChangXin Memory Technologies (CXMT) added to the pressure on chip stocks. After CXMT said it would unveil server DDR5 DRAM using a vertical structure within the year, unease grew that it could threaten the market positions of Samsung Electronics and SK hynix. The product's actual performance and mass-production feasibility have yet to be confirmed, but China's move to narrow the technology gap through an approach different from that of incumbent memory makers rattled investor sentiment.
Interest rates and macroeconomic uncertainty also weighed on the market throughout the week. The U.S. consumer price index came in above market expectations, highlighting rate pressure, while the risk of war in the Middle East and rising long-term U.S. Treasury yields dampened sentiment. BlackRock's downgrade of U.S. equities to neutral from overweight, citing high Treasury yields, further fueled risk aversion.
Rebound After Eight Sessions, But Trend Shift Unclear
On the 16th, the KOSPI closed at 5,668.05, up 113.83 points, or 2.05%, rebounding after eight sessions. The KOSDAQ jumped 4.46%, triggering a buy-side sidecar. The gains came as U.S. Treasury yields fell, led by longer maturities, and as Nvidia Chief Executive Jensen Huang gave a positive assessment of the financial condition and funding environment of AI cloud company CoreWeave, easing concerns somewhat over AI credit risk. Foreign investors also turned net buyers on the main board for the first time in eight sessions.
Securities analysts, however, say a single day of gains is not enough to conclude that the downtrend has ended. Seo Sang-young, an executive director at Mirae Asset Securities, said credit risk at AI companies has not been resolved, adding that a sustained shift to an uptrend requires confirmation of the details during earnings season.
