COVER STORY Black Thursday: KOSPI plunges 7% amid AI spending fears
The benchmark KOSPI is displayed in the dealing room of Hana Bank in Seoul, Thursday. The index closed at 5,554.22, down 7.57 percent from the previous session. Korea Times photo by Shim Hyun-chul
7-session rout erases over $745 bil. in market cap
Korean stocks plunged 7.57 percent and shed nearly 400 trillion won ($297.7 billion) in market capitalization Thursday, amid concerns over the sustainability of artificial intelligence (AI) spending and the outlook for the semiconductor sector.
The benchmark KOSPI closed at 5,554.22, down 7.57 percent. A sell-side sidecar was triggered at 9:07 a.m., marking the 27th activation this year, followed by a Level 1 circuit breaker at 12:38 p.m.
A sell-side sidecar is triggered when the most actively traded KOSPI 200 future falls at least 5 percent from the previous session for one minute. A Level 1 circuit breaker kicks in when the benchmark index drops at least 8 percent from the previous close for one minute.
Foreign investors dumped 3.6 trillion won worth of shares, extending their net selling streak to eight consecutive trading sessions. Institutional and retail investors made net purchases of 1.69 trillion won and 1.29 trillion won, respectively, stepping in to scoop up shares at bargain prices.
Heavy selling weighed on market heavyweights. Samsung Electronics fell 9.48 percent to close at 210,000 won, while SK hynix dropped 11.06 percent to 1.262 million won.
SK Square, LG Energy Solution, Samsung Electro-Mechanics and Hyundai Motor also fell 10.21 percent, 4.62 percent, 15.36 percent and 5.74 percent, respectively.
The tech-heavy Kosdaq was also hit hard, plunging 7.65 percent to close at 760.82. A sell-side sidecar was triggered at 9:12 a.m., followed by a Level 1 circuit breaker at 12:23 p.m.
"KOSPI is now down 40.4 percent from its June 19 peak of 9,385 points, approaching the median decline of 43.7 percent recorded during seven previous market crises, including Black Monday in 1987, the Asian financial crisis in 1997, the dot-com crash in 2000 and the global financial crisis in 2008," said Lee Kyoung-min, an analyst at Daishin Securities.
Over seven consecutive trading sessions since Oct. 6, KOSPI has plunged about 20 percent, wiping out over 1,100 trillion won in market capitalization.
Graphic by Cho Sang-won
Thursday's sell-off was attributed to worsening investor sentiment after U.S. consumer price data for September came in hotter than expected, fueling concerns over further monetary tightening.
The yield on the 10-year U.S. Treasury note subsequently climbed above 5.3 percent, raising concerns about higher borrowing costs for AI infrastructure companies that have relied heavily on debt to finance expensive chips, power systems and equipment.
Shares of CoreWeave, which rents out AI computing capacity to businesses, plunged 15.46 percent on Wednesday (local time), while rival Nebius tumbled 10.08 percent. Oracle, which has been aggressively expanding its data center investments, slid 8.83 percent, while AI server maker Dell Technologies sank 11.27 percent.
The pressures were compounded by deteriorating investor sentiment in the Korean market, which extended its losing streak to seven sessions, according to Han Ji-young, an analyst at Kiwoom Securities.
"The upcoming third-quarter earnings season will be another key test for market-leading stocks to dispel concerns over AI, as they did in the second quarter," Han said. "Volatility is likely to remain elevated as investors assess the results."
Yun Jung-in, CEO of Fibonacci Asset Management Global in Singapore, said foreign investors may continue selling Korean stocks in the near term, but it is too early to conclude that they are pulling out of the Korean market for the long term.
"If interest rates stabilize and foreign investors return, beaten-down blue-chip stocks could lead a rebound," Yun said. "We view the current correction as an opportunity to selectively buy stocks with solid earnings prospects."
Financial authorities held an emergency meeting later in the day in an effort to ease market concerns. They said the sell-off appeared excessive in terms of the pace of the decline and investor trading flows. They also stressed that Korea's key industries continue to post solid earnings on the back of their global competitiveness, while the country's economic fundamentals remain robust.