SEOUL: A global selloff in semiconductor stocks dragged South Korea’s equity benchmark down 8% on Thursday, underscoring the scale of an investor exodus from the frothiest corners of the AI trade.
Worries over US Federal Reserve interest rate hikes and AI funding difficulties came to the fore, pushing SK Hynix Inc and its memory peer Samsung Electronics Co down more than 9% each. Korea’s stock exchange halted trading for 20 minutes as selling deepened.
Japan’s Nikkei 225 dropped more than 5%, with semiconductor-related shares including Ibiden Co and Kioxia Holdings Corp among the worst performers.
Investor angst grew after data showed US consumer prices advanced in September at the fastest clip in five months, spurring bets on more aggressive Fed tightening.
Adding to jitters over the AI trade, CoreWeave Inc shares plunged as its bonds fell to levels that typically indicate distress, leading investors to again question the sustainability of large spending on AI infrastructure.
“Korea is becoming the shock absorber for the global AI selloff, as CoreWeave’s funding troubles and hotter US inflation fuel concerns over rising borrowing costs and the sustainability of AI spending,” said Hebe Chen, an analyst at Vantage Global Prime. That’s pushing investors to further unwind positions in Samsung and SK Hynix, she added.
A closely watched US gauge of semiconductor stocks has erased US$1.6 trillion in market value in a six-day losing streak. Strong earnings reports from Samsung and ASML Holding NV have failed to calm investors.
The Kospi is poised for its seventh-straight day of declines, headed for its lowest close since early April. Foreigners have been driving the selloff, dumping US$1.8 billion worth of Kospi equities Thursday morning alone. They have sold more than US$10 billion in October.
The selloff hit Taiwan and Chinese markets as well, with the Taiex gauge falling more than 3% and the chip-heavy Star 50 index of onshore stocks falling to the lowest since April.
“Investor sentiment is weak, and fatigue has been building,” said Jo Hyunik, an investment division manager at Seoul-based Iroom Investment Advisors. “I expect this volatile, flow-driven market to persist until there is greater clarity on US rates and the midterm elections,” he added.
SK Hynix has now fallen 57% from its summer peak. The memory giant had been Asia’s posterchild for the AI trade, with its shares soaring more than 1,000% in the 12 months year through June as investors flocked to memory bottleneck trades. Leveraged exchange-traded products tied to the chipmaker helped fuel frenzied trading by retail investors, driving the meteoric rally along with record volatility. The stock has lost more than US$660 billion in market value from its all-time high.
Recent weeks have brought mounting signs of increasing investor concern about the sheer size of AI debt loads. CoreWeave’s bonds due in 2032 have slid to about 78 cents on the dollar, prompting Elon Musk to flag the drop with a “yikes” on his social media platform. That’s after just late last month, SoftBank Group Corp had to pay record yields in an effort to fund its massive AI ambitions.
The selling has made Kospi’s valuation more attractive at less than 5 times forward earnings estimates, less than half the level a year ago. Yet with the bearish sentiment prevailing, money managers are calling for caution.
“The South Korean stock market’s valuation has dropped to an extreme level now,” said Kang DaeKwun, chief executive officer at Life Asset Management. While any pullback from the current level can be considered as an entry point, investors must make sure that problems over tech funding are resolved, he added.
The next key event to watch for Asian chip stocks will be earnings due later Thursday from Taiwan Semiconductor Manufacturing Co — its shares slipped as much as 2.8% in morning trading. Taiwanese tech stocks have held up better than Korean peers in recent weeks, with concerns on the longevity of the memory cycle weighing heavily on Samsung and SK Hynix following big gains this year.