KOSPI Reclaims 5,700…Inflation, Interest Rates and AI Investment Concerns in Focus as Foreign Selling Continues

KOSPI Reclaims 5,700…KOSDAQ Triggers Buy-Sidecar The KOSPI recovered above 5,730 intraday, rising more than 3%, while the KOSDAQ climbed to 793 points, gaining as much as 4.25%. The advances later widened, with the KOSPI up 3.9% at 5,773 and the KOSDAQ up 5.14% at around 799 points. A buy-sidecar was triggered on the KOSDAQ. Foreign investors continued to sell despite the rebound. At one point in the morning, they were net sellers of more than KRW 260 billion on the main exchange and about KRW 100 billion on the KOSDAQ, while institutions made modest purchases in both cash equities and futures. The won-dollar exchange rate rose by about KRW 2 to around 1,344. Before the rebound, the KOSPI had fallen for seven consecutive trading sessions, losing as much as 40% from its peak. The fact that foreign selling did not grow further intraday provided some relief, but it is difficult to conclude that market-flow uncertainty and volatility caused by the sharp decline have abated. KOSPI and KOSDAQ Gains — Compared intraday gains in the KOSPI and KOSDAQ. The KOSDAQ rose more than the KOSPI. CoreWeave Rebounds, but Bond Market Remains on Guard U.S. AI cloud provider CoreWeave rebounded 5.94% at the close after plunging the previous day, ending trading at around $69. Nvidia Chief Executive Jensen Huang said, in effect, that CoreWeave's cost of capital was falling and its competitiveness was improving, and that Nvidia did not need to provide additional funding to the company. Nvidia invested $2 billion in CoreWeave earlier this year. CoreWeave bond prices also rebounded after Huang's remarks. Bank of America maintained its $140 price target and Buy rating while raising its revenue outlook. Deutsche Bank also kept its $150 price target, saying there were no fundamental issues to justify the recent sell-off. However, CoreWeave bonds traded more than 20% below face value, and rose by only about 2% while the stock gained roughly 6%. Market concerns have not fully subsided. A key issue is that high borrowing costs could weigh on profitability, regardless of the outlook for its AI business. CoreWeave Stock and Bond Price Rebounds — Compared the rebound in CoreWeave’s stock and bond prices. The stock’s gain was larger than the rise in bond prices. Slower Anthropic Revenue Growth Fuels Valuation Debate Anthropic, the company behind Claude, reported third-quarter revenue of $16.8 billion in financial materials shared with investors. That was a 45% increase from the previous quarter, but growth had slowed compared with the second quarter, when revenue more than doubled from the prior quarter. Anthropic has pursued a public listing at a $2 trillion valuation, but some observers said it may need to lower that figure to around $1.5 trillion to reflect slower growth and intensifying competition. The debate also focused on the possibility that OpenAI's release of a new model had diverted users and attention, as well as allegations that Chinese AI companies had distilled and used Anthropic products and the potential impact on revenue. There are concerns that a lower valuation could reduce the funds raised through a listing and affect future investment plans. On the other hand, Anthropic's reported third-quarter profit was seen as a significant development, demonstrating not only revenue growth but also its ability to generate actual earnings. Market Expectations Rise Despite Strong TSMC Results TSMC reported strong profitability and results, including a gross margin of 66.4%. The product mix also improved as advanced processes of 7 nanometers and below accounted for a larger share of revenue. The company said AI demand continued to exceed supply and demand for advanced processes remained firm. TSMC forecast that capital expenditure in 2026–2028 would increase substantially from the previous three years and said it would concentrate investment on advanced processes. It also expressed confidence that profitability could improve further. However, interpretations that the outlook for consumer semiconductor demand was not sufficiently positive, along with concerns about the initial production burden of new processes, weighed on its U.S.-listed ADRs, which fell 1.8%. The share price decline after the results was seen less as a sign of poor performance than as a response to expectations that were already high. TSMC's record of delivering consistent profits over multiple quarters has been reflected in its valuation, prompting comparisons with Samsung Electronics and highlighting the importance of sustainable earnings, not just a single quarter's results. Financing Costs, Not Demand, at the Heart of AI Investment Concerns CoreWeave's business model involves borrowing money to buy GPUs and then leasing them to customers. Its profitability depends on how cheaply it can finance GPU purchases and how much it can charge for rentals. One interpretation is that the current strain stems not from a disappearance of rental demand but from a sharp rise in borrowing rates. CoreWeave's typical financing rate is around 9%, but concerns have emerged that it may now have to bear costs of 14.8–15%. If these difficulties spread to other AI infrastructure companies, they could affect semiconductor purchases and data center investment, putting financing conditions across the AI ecosystem in focus. Huang emphasized that CoreWeave's long-term contracts and secured orders underpin its business. Debate continued over whether AI demand itself had weakened or investment costs had risen because of higher interest rates. Anthropic's slowing growth was considered separately from financing challenges, as a factor in assessing whether AI companies can sustain their growth. U.S. PPI Surges…Consumer Spending Slows Excluding Fuel Effects The U.S. Producer Price Index (PPI) rose 1.3% month over month in September, far exceeding expectations of 0.6%. Core PPI also increased 0.7%, above the 0.3% forecast, while the year-over-year increase was cited at about 6%. Energy prices rose sharply, but the data also showed inflationary pressure spreading to other categories. U.S. retail sales rose 0.8% month over month in September, above the market forecast of 0.3%. However, the increase in gasoline station sales, driven by higher fuel prices, accounted for a large share of the gain. Control-group retail sales, which are used to calculate GDP, increased only 0.1%, below the expected 0.3%. The headline figures showed spending growth, but the details pointed to a combination of slowing consumption and rising prices. Despite hotter-than-expected inflation data, the U.S. 10-year Treasury yield fell by more than 10 basis points to the low 5% range. Much of the decline reflected increased demand for U.S. Treasuries as a safe asset compared with AI company bonds. The dollar index also briefly rose to 102 before weakening to around 100. It was also noted that falling yields cannot be viewed as entirely positive if they reflect concerns about an economic slowdown. U.S. September Producer Price Inflation and Market Expectations — Compared the month-over-month increases in September PPI and core PPI with market expectations. Actual increases in both indicators exceeded expectations, with PPI recording the highest increase. Duration of War-Driven Energy Shock to Shape Inflation Outlook War and rising oil prices have been cited as major drivers of recent U.S. inflation. As energy prices feed into producer and consumer prices, they are stoking concerns about interest rate hikes. However, some forecasts suggest that upward pressure on energy prices could ease if there are no further shocks. UBS said inflation could peak around November. It noted that the U.S. government shutdown last year disrupted the collection of relevant price data, potentially biasing figures for that period. If upward pressure from the energy shock and tariff increases abates, it forecast that longer-term inflation could slow at a moderate but uneven pace. The base effect in year-over-year inflation was also cited as support for the longer-term outlook. Since 2000, in seven of the eight years following a year in which U.S. inflation exceeded 3%, the rate fell to the 2% range. Given this year's high inflation rate, the pace of price increases could slow next year, but that would not mean the price level itself would fall. [Kwangsoo's Take] Sound Reasoning and Accountability Before Hasty Trading Lee Kwang-soo said that limiting losses is important in a sharp downturn and that investors with an excessive allocation to stocks could consider reducing it. He stressed, however, that acting hastily without reaching a conclusion about the market's direction is risky. Buying new shares and deciding what to do with existing holdings are different questions, and he made clear that he was not recommending holding stocks simply because prices might rise. Lee said he had encouraged more people to invest for the long term on the belief that the Korean stock market would improve, and emphasized the responsibility that comes with offering investment guidance. Investors should act only after assessing whether the uptrend will continue or turn into a downtrend. He said he would examine the situation carefully rather than rush to a conclusion, and provide investors with a clear answer. He advised investors responding to a downturn to first consider not only what to do, but also what not to do. Rather than being swept up in sharp declines and rebounds, borrowing money or rushing to trade, investors should focus on weathering uncertainty while volatility remains high. The KOSPI has fallen 20% over a period of about a month on five occasions in the past 16 years, and investors have experienced three of those episodes in less than a year. He said investors need to recognize how unusual the current market environment is. Park Si-dong, speaking in a personal capacity, said Samsung Electronics and semiconductor stocks had fallen far below their intrinsic value. Based on the previous day's closing price, he calculated Samsung Electronics' dividend yield at 6.4–8%, and argued it could rise to around 9% if the share price fell a further 10%. Comparing the current low multiples of semiconductor stocks with the KOSPI's historical price-to-earnings ratio of about 10 times, he interpreted them as reflecting excessive market expectations of weaker earnings next year. He forecast that continued earnings growth and improvements in shareholder returns could convince the market. Park said cumulative net foreign selling since the start of the year had exceeded KRW 230 trillion, and suggested that profit-taking by investors who bought at lower prices and a shift in semiconductor preferences could be behind the selling. In a Korean market heavily weighted toward Samsung Electronics and SK Hynix, selling in those stocks amplifies declines in the index. He also said selling pressure from investors who bought at 7,000–8,500 could prompt foreign investors to remain on the sidelines. He cited a slowdown in foreign selling, a recovery in semiconductor demand, increased dividends and share cancellations by companies, and improved domestic market flows as conditions for a return of buying. It was argued that the government and political establishment also have an important role to play in restoring confidence in the Korean market. Park called for policy messages to support investor sentiment, citing market reforms, efforts to revitalize the KOSDAQ, amendments to the Commercial Act, outreach to overseas investors, and the participation of market-stabilization funds and retirement pensions in the market. Lee also said that stock markets grow when investors, companies and government policy all move together. He expressed hope that political and policy attention would follow corporate changes such as higher dividends and share cancellations.