KOSPI and KOSDAQ Plunge on U.S. Inflation and AI Funding Concerns; Sell-Sidecars Triggered on Both Markets

The KOSPI fell 7.8% intraday to around 5,536, while the KOSDAQ slid about 7.8% to around 759. Sell-sidecars were triggered on both markets. The indexes subsequently fell by more than 8%, prompting circuit breakers that halted trading on both markets for 20 minutes. The losses had not been fully recouped by around noon.

Foreign investors continued their selling streak, recording net sales of more than KRW 2.6 trillion on the KOSPI market. The broadcast reported that foreign investors had posted net sales for an eighth consecutive trading day. Foreign investors made modest net purchases on the KOSDAQ, but institutions sold, keeping supply-demand pressures in place.

The won-dollar exchange rate rose by 8 won and 20 jeon from the previous day to 1,351 won. As the indexes plunged, currency fluctuations also widened, showing that instability in South Korea's financial markets was not confined to equities.

Anthropic is set to hold an investor day for institutional investors and disclose its third-quarter results. The market is watching how the company will address controversy over the way OpenAI and Anthropic calculate revenue, as well as its growth rate and the scale of its actual revenue generation. The broadcast also cited earnings figures expected by the market, but the figures shown in the captions were unclear, making it difficult to state a specific amount with confidence.

Reports said Anthropic's securities registration statement could be made public within 10 days, while an IPO before Thanksgiving in November was floated as a possible timeline. Expectations grew that the offering could rank among the largest IPOs in history if it achieved a target valuation of $2 trillion. It was noted that only seven companies worldwide have market capitalizations above $2 trillion, while Meta's market capitalization is around $1.9 trillion.

Concerns were also raised that institutions might reduce their exposure to Asian equities to raise funds ahead of a large offering. Some observers said a similar pattern could recur to the foreign selling seen in domestic and overseas markets ahead of expectations for a SpaceX listing. Samsung Electronics and SK hynix are also reported to have invested in Anthropic, but the size of their stakes has not been disclosed and remains to be confirmed.

CoreWeave shares plunged more than 16% in the U.S. market. CoreWeave uses borrowed funds to acquire GPUs and build data centers, then rents AI computing resources to businesses. Given its high upfront capital expenditure, rising interest rates increase not only the interest burden on existing debt but also the cost of raising additional funds.

According to Bloomberg, CoreWeave's bonds maturing in 2032 traded below 80 cents on the dollar, and their yields exceeded 15%. The market also heard that yields had risen as high as 17%. Warnings followed that a contraction in AI industry financing, or an inability to bear high interest costs, could significantly erode shareholder value.

CoreWeave's funding risks could spread across the AI supply chain, including Nvidia and memory makers. Nvidia has invested $2 billion each in CoreWeave and Nebius, raising concerns that a weakening of neocloud providers' capacity to invest could also weigh on GPU sales and data center expansion. The market has begun reassessing whether AI investment can generate long-term returns and whether it can secure margins that exceed borrowing costs.

Dell Technologies shares fell 11%. Dell had previously attracted expectations that corporate AI adoption was gaining momentum after reporting strong revenue from enterprise customers, but Barclays questioned whether the increase reflected broader AI adoption. The possibility that higher memory prices had driven revenue growth was also raised.

Barclays lowered its rating and price target for Dell. Shares of HP and companies involved in enterprise and networking equipment also fell. Concerns emerged that hardware stocks could react more sensitively if evidence weakens that enterprise AI investment will generate further growth, particularly when much of the market's optimism is already reflected in share prices.

BlackRock CEO Larry Fink said the U.S. economy could fall into recession if construction of AI data centers were halted. He said a substantial part of the U.S. economy depends on expanding capital expenditure for AI infrastructure. With opposition to data center construction growing ahead of the U.S. midterm elections, he also warned that a halt to investment could weaken an important engine of growth.

BlackRock had previously downgraded its short-term view on U.S. equities and upgraded its view on U.S. short-term bonds. Fink's remarks pointed to the vulnerability of an economy increasingly dependent on AI infrastructure, while also being open to interpretation as an argument against halting data center investment. The market's concerns grew around the chain of risks in which rising inflation pushes up interest rates and borrowing costs, leading to cuts in AI capital expenditure and an economic slowdown.

The U.S. Consumer Price Index for September came in above market expectations. Headline CPI rose 0.6% from the previous month, while core CPI, excluding energy and food, increased 0.3%, exceeding expectations of a 0.2% rise. Evidence of price pressures that could not easily be attributed to energy alone heightened concerns that inflation might not cool quickly.

Core goods prices rose 0.25% month over month, the largest increase since January 2025, while services prices rose 0.37%. Price increases were also seen in used cars, auto maintenance and repairs, and hospital services. Within housing, the increase in owners' equivalent rent accelerated from 0.2% in August to 0.3% in September, while rents continued to rise 0.2%.

Housing carries a large weight in CPI and adjusts slowly, prompting concerns that disinflation could be delayed even if energy prices stabilize. The explanation was that higher energy costs could feed through to transportation and logistics costs and goods prices, while also affecting household expenses and rents. The market's key concerns were that inflation was higher than expected, spreading across multiple categories, and potentially persistent.

Rate hike expectations for later this year resurfaced after the CPI release. With expectations for rates to remain unchanged in October previously dominant, the probability of a hike briefly rose to around 50%, and the U.S. 10-year Treasury yield topped 5.3% intraday. Fed officials' comments were mixed, while hawkish remarks by President Austan Goolsbee were reported. Market attention also turned to Fed officials' scheduled remarks at the IMF-World Bank annual meetings the following day.

Lee Kwang-soo cited rising corporate profits, lower valuations than global markets, and increased dividends and share buybacks by companies as the existing investment case for South Korean equities. He said that if losses had accelerated sharply over just a few days despite no clear signs of a collapse in South Korean corporate earnings or exports, much of the decline may have stemmed from supply-demand dynamics. His assessment was that domestic institutions and individual investors had weakened as buyers, leaving too few participants to absorb foreign selling.

He said trading value in the domestic stock market was about 30% of its peak level and investor deposits were not increasing, suggesting that the flow of funds into equities had stalled. He pointed to the possibility that foreign capital was moving to Brazil and Taiwan, while foreign investor preferences within AI investment were shifting from hardware to software, reducing the appeal of the South Korean market. He explained that if buying in Samsung Electronics and SK hynix weakened, the two stocks' large index weight could drag down other sectors as well.

Lee Kwang-soo said it was difficult to conclude whether the recent decline was a correction during an advance or the start of a prolonged downtrend marked by lower lows. He said views were divided between the idea that semiconductors were passing a cyclical peak, as in the past, and the view that this cycle was different because of long-term contracts and AI data center demand. He also stressed that South Korea's market must prove it is no longer one that gets trapped in a long-term trading range after a sharp rally, by showing a closer link between corporate value and share prices and broadening investment across sectors.

Lee Kwang-soo said investor anxiety was being heightened by the fact that, unlike during crises such as the global financial crisis, the reasons for the current plunge were not being clearly explained. At the time, the shock of a financial system collapse was accompanied by expectations of a response, including a short-selling ban, stimulus measures, and public fund injections. He said the sense of frustration was greater this time because, even as markets plunged, there appeared to be no clear rationale or measures to bolster investor sentiment.

He said this was not a situation in which he would recommend buying stocks, while adding that investors should assess whether the decline was a temporary correction or a trend-driven fall before deciding what to do with their holdings. Acting hastily without reaching a conclusion was risky, he said, but investors with excessively high equity exposure could consider adjusting some of it to reduce losses. His position was not to declare an immediate bottom or rebound, but to look for evidence that could help determine the market's direction.

Lee Kwang-soo also argued that policy signals were needed to restore domestic investors' confidence. He said measures for the stock market that had been discussed, including ways to encourage retirement pension funds to participate in the domestic equity market, should be fleshed out, and that investors needed confidence that the market would not be left unattended. He clarified that this was not a call to mobilize pension funds, but rather a call to provide a signal that authorities and the market were responding during the downturn.

He also saw room for a recovery if corporate earnings and capacity for shareholder returns held up, particularly after share prices had fallen excessively. Lee Kwang-soo noted that Samsung Electronics' dividend yield at its current share price could exceed 5%, and said investors should consider whether share prices could remain undervalued for an extended period if earnings and economic growth continued. He did not, however, assert that a recovery would come as soon as the following day.