COVER STORY Black Friday: KOSPI sinks 6%, extending slide on US AI regulation fears
SK hynix drops 10.44%, Samsung Electronics tumbles 6.35% as chip stocks lead sell-off
A screen displays the benchmark KOSPI at the Korea Exchange in Yeouido, Seoul, Friday. The index plunged more than 8 percent in morning trading, falling below 5,000 and triggering a circuit breaker. After fluctuating around the 5,000 mark, it closed at 5,059.69, down 324.11 points, or 6.02 percent. Yonhap
KOSPI plunged more than 6 percent Friday, barely holding above the 5,000 mark, as fears of tighter U.S. regulation of artificial intelligence (AI) data centers sparked panic selling in chip stocks.
The benchmark finished at 5,059.69, shedding 324.11 points, or 6.02 percent, following a 5.28 percent decline the previous day.
After opening 2.24 percent lower at 5,263.26, the index quickly lost more ground, falling over 8 percent and slipping below 5,000 for the first time since Feb. 6.
The plunge triggered a first-stage circuit breaker at around 9:03 a.m., suspending trading for 20 minutes. Renewed selling after trading resumed prompted a sell-side sidecar at around 9:34 a.m., temporarily suspending the execution of program sell orders. It was the second straight session in which a sell-side sidecar was activated. The index subsequently recovered some ground to close above 5,000.
Investor sentiment deteriorated after the Democrats won control of both the Senate and the House in the U.S. midterm elections, raising fears that stricter rules could slow AI data center construction. The fears are getting closer, as Texas Governor-elect Gina Hinojosa, a Democrat, told CNN Thursday (local time) that data center projects should be put on hold until safeguards for residents are in place. Reaffirming her campaign pledge to suspend approvals for new facilities, she cited concerns over water depletion, power shortages and rising electricity bills.
These concerns caused heavy overnight losses on Wall Street, which then intensified selling pressure on Korean technology shares.
Samsung Electronics dropped 6.35 percent and SK hynix slumped 10.44 percent, dragging the broader market lower.
The losses pushed their combined market value below 2 quadrillion won ($1.47 trillion) for the first time since April 14. At 11:06 a.m., the two chipmakers had a combined market capitalization of about 1.894 quadrillion won, according to the Korea Exchange. That represented a decline of about 2.280 quadrillion won, or 54.6 percent, from their record combined valuation of about 44.174 quadrillion won on June 25.
At the same time, their combined share of KOSPI’s total market capitalization fell to around 46 percent, compared with 57.11 percent at the June peak.
The tech-heavy Kosdaq also suffered steep losses. It opened 23.98 points, or 3.53 percent, lower at 654.43 before extending its decline, triggering a sell-side sidecar at around 9:06 a.m. The index closed down 34.14 points, or 5.03 percent, at 644.27.
Finance Minister Lee Hyoung-il speaks during a meeting of economy-related ministers at Government Complex Seoul, Friday. Yonhap
Market analysts say a rebound in Korean stocks will likely require both stable interest rates and sustained confidence in AI investment. Both conditions would need to be met for investors focused on U.S. Big Tech to look to other markets.
“U.S. interest rates and the AI trade will shape global financial conditions,” said Kwon Hyo-sung, an economist at Bloomberg. “If AI momentum holds and rates stay low or at least stop rising, capital could return to Asian markets.”
The best-case scenario would see stability in the Middle East ease inflation concerns while market confidence in AI profitability strengthens. Conversely, worsening tensions that keep oil prices elevated, coupled with growing doubts over AI profitability, could put further pressure on stocks.
The Federal Reserve’s dilemma between containing inflation and supporting market stability could add to the uncertainty.
Against this backdrop, Park Hye-ran, an analyst at Samsung Securities, identified developments in the Middle East as the biggest variable, saying concerns over AI profitability were excessive.
“The Iran war will be the key macroeconomic factor shaping the stock market outlook,” Park said. “Fighting and rhetoric may temporarily escalate as the parties push for a deal to end the war, but talks are likely to continue behind the scenes.”
Meanwhile, Finance Minister Lee Hyoung-il indicated that the government stood ready to act, saying relevant agencies would prepare measures in advance and deploy them promptly to curb market swings out of line with economic fundamentals.
“Experts foresee continued AI investment, and our economy’s fundamentals are more robust than ever,” Lee said. “We will carefully track external uncertainties while seeking new opportunities for cooperation.”
Lee also vowed to monitor the global economic fallout from the U.S. midterm elections and respond accordingly.