KOSPI Rebounds After Plunging 3.2%… AI Investment Concerns and Foreign Selling Put Market to the Test

The KOSPI pared losses after plunging 3.2% early in the session and attempted to turn higher. The index recovered the 5,700 level intraday, while the KOSDAQ touched 800. The KOSDAQ was around flat at one point in the morning but rebounded alongside a broader recovery in Asian markets.

Foreign investors bought KOSPI and KOSDAQ shares early in the session but later turned to net selling. They recorded net sales of more than KRW 140 billion on the Korea Exchange, while posting net purchases of more than KRW 280 billion in the futures market. The won strengthened further, with the won-dollar exchange rate at KRW 1,332.

The Philadelphia Semiconductor Index fell for an eighth consecutive session. A ninth straight decline would mark the longest losing streak on record, drawing attention to how U.S. technology stocks perform overnight and the potential impact on the domestic market. Japanese and Taiwanese markets also recovered some of their morning losses, while Chinese and Hong Kong markets attempted to turn higher.

U.S. Big Tech earnings reports are set to gather pace this week, while the Bank of Korea's Monetary Policy Board meets on Thursday. France's budget review and Nvidia's GTC event are also on the calendar. Meta, Tesla, Lam Research and IBM will report earnings after Wednesday's close in the United States, meaning Korean investors will see the results before Thursday's market open.

CoreWeave fell more than 11% in U.S. trading. Reports that Microsoft had withdrawn from a data center contract with British data center operator Nscale also weighed on AI hardware-related stocks. Nscale was reportedly told that power would not be available at the site until the 2030s, while construction of its data center in Norway has also been delayed.

Oracle faces concerns that its bond financing costs and reliance on financing secured by GPU assets could translate into credit risk. Morgan Stanley said Oracle's credit risk warranted closer scrutiny, while rising bond yields for CoreWeave also highlighted the funding burden facing AI infrastructure companies. JPMorgan, by contrast, said CoreWeave could turn free cash flow positive in 2030, and ARK Invest bought shares.

Meta's results this week will be scrutinized for whether its AI investments are generating tangible returns and for what they signal about future spending plans. Questions have been raised about the commercial viability and profitability of Tesla's Roadster following its unveiling. Elon Musk's comments on memory prices and China's production capacity were also interpreted as reflecting the cost pressures Tesla faces from rising prices for commodity memory.

Hedge funds recorded net selling in Goldman Sachs' basket of global AI stocks for eight consecutive trading sessions from Oct. 8 to 14. The selling reversed net buying positions built up since early last year and was driven more by the unwinding of existing long holdings than by aggressive short selling. However, AI-related positions remain above their usual levels even after the sales, leaving market participants divided over whether further selling is ahead or the pressure has run its course.

The strain on AI data center businesses stems from high interest rates coinciding with construction delays. If a data center begins operating later than planned, expected revenue is pushed back while interest expenses continue to accrue, potentially creating a cash shortfall. This is why markets are monitoring bond financing conditions at CoreWeave and Oracle, as well as the expansion of financing secured by GPUs.

At the GTC event in Berlin, Jensen Huang said recent news had not changed the industry's fundamentals and urged a focus on long-term value. The CFO of Amazon Web Services also said there was no need to worry about spending, citing demand for AI investment and the company's order backlog. AWS said the payback period on AI server investments was under three years, but the market is assessing interest rates and financing conditions alongside profitability.

Morgan Stanley warned that, if AI companies continue investing at the current pace, more than $3 trillion in AI infrastructure assets could be exposed to impairment risk by the end of 2030. Whether capital spending can be recouped through actual revenue and cash flow is a key issue that will determine the industry's long-term growth prospects.

Battery-related stocks, including Samsung SDI, LG Energy Solution and SK Innovation, rose sharply. At one point, Samsung SDI was up around 10%, while LG Energy Solution and SK Innovation had gained around 6%. Reports of growing installations of energy storage systems in the United States supported investor sentiment.

Reports also said Chinese battery companies were withdrawing from the U.S. market amid regulatory and tariff pressures. The share of the U.S. ESS market excluding Chinese suppliers is forecast to rise from about 55% currently to 75% by 2030. However, China’s exclusion from the electric vehicle market was also anticipated in the past, and the market’s actual reshaping differed from expectations, so it remains to be seen whether the regulatory outlook will materialize.

Domestic companies are drawing expectations that orders and earnings could improve on the back of their U.S. investments. Some also see greater scope for Korean companies to compete with China in ESS than in EV batteries. Samsung SDI is scheduled to report earnings on Oct. 29, POSCO Future M on Nov. 2 and the EcoPro group on Nov. 5.

Opposition and protests over France's austerity budget intensified. The fiscal deficit exceeds 5% of gross domestic product, while government debt has reached 120% of GDP. With growth stagnant, the country remains on a path that requires continued borrowing, heightening concerns about confidence in its government bonds and borrowing costs.

Energy prices have risen more than 20% from a year earlier, adding to the cost-of-living burden and contributing to the spread of protests. Students protested against passing fiscal burdens on to future generations, while nurses, firefighters and others joined demonstrations against cuts to pensions and allowances. Public discontent also grew after it emerged that even candidates for the next presidential election supported fiscal austerity.

France's fiscal uncertainty could affect European bond markets and global interest rate trends. Yields on French government bonds rose as concerns intensified, but the U.S. 10-year yield edged down by about 3 basis points to around 5.06% during Asian trading hours, offering some stability. Deliberations on France's 2027 budget are continuing, and markets are focused on measures to ensure fiscal sustainability and the prospects for political agreement.

A comparison also highlighted that France's stock market has a PBR of around 2, while Korea's is around 1.2–1.3. The fact that French stocks command a higher valuation than Korean stocks despite posting a negative return year to date has renewed debate over the Korean market's undervaluation.

A mandatory tender offer is a system that requires an acquirer buying shares in a company to make a public offer to ordinary shareholders on the same terms as those offered to major shareholders. The proposal was advanced to address the practice of awarding a control premium only to major shareholders while ordinary shareholders are left to sell their shares at lower prices.

The bill submitted to the National Assembly would have allowed an acquirer to secure only a 50%-plus-one-share stake, rather than requiring a tender offer for all shareholders. Critics also said it did not sufficiently prevent advance share trades with major shareholders. Amid criticism that it was a half-measure that failed to provide minority shareholders with a meaningful opportunity to sell, passage in the plenary session was put on hold.

An online petition to the National Assembly was launched, calling for the bill to be redesigned and for a comprehensive review of the mandatory tender offer system and legislation to prevent stock price suppression. Support was solicited with a target of 50,000 signatures, alongside calls to narrow disparities in shareholder rights and address the Korea discount through improvements to the system.

CEO Park Shin-woo cited foreign investors' sales of more than KRW 230 trillion in domestic stocks since the start of the year as a reason for the selling. Investors who bought at low prices in the past can still realize gains even after recent share price declines, meaning they face little pressure to sell, he explained. He added that even if foreign investors continue to invest in AI, they may not view semiconductors as their top sector and could shift funds to other areas of AI.

Given the large weight of Samsung Electronics and SK hynix in the KOSPI, the broader Korean market may remain weak while foreign investors sell the two stocks. The analysis is that foreign investors may hesitate to buy other Korean stocks as they sell semiconductors, while existing investors' purchase price levels create selling overhang that could cap an index rebound. However, he said foreign buying could resume once profit-taking runs its course, preference for memory stocks returns and domestic market flows improve.

Park Shin-woo said investors should first decide whether to reduce their holdings now that the market has fallen, or instead increase them during a recovery. His position was that investors should examine the evidence more closely rather than offer vague hopes, and, above all, avoid acting rashly without having reached a conclusion. He said shareholder returns such as treasury share cancellations and dividends, restored confidence in Samsung Electronics and SK hynix earnings, and an overall improvement in market flows could prompt foreign investors to return.

Over the past 16 years, the KOSPI has fallen 20% over periods of between one month and 40 days on five occasions, three of them in less than the past year. Having experienced steep declines over a short span comparable to the European debt crisis and the COVID-19 shock, investors are naturally feeling fatigued and anxious.

Lee Kwang-soo said he responds by focusing not only on how far share prices have fallen but also on whether the market can recover, and by avoiding checking prices too often. In some past cases, recovery from a sharp decline took years, while in others the market recovered just 20 days after a shock such as war. His view is that the current decline is unusual, and the potential for recovery should be considered as well.

Selling in AI-related stocks and rising corporate bond yields can be viewed as warning signs, but also as part of a process in which the market brings problems to light in advance. The market's response in reviewing funding structures and seeking alternatives could help prevent a sudden bubble collapse rather than amplify risks. Investors should, however, develop plans based on different downside and recovery scenarios before taking either an optimistic or pessimistic view.

Hana Securities estimated a second KOSPI low of around 5,332 based on past W-shaped rebounds. Korea Investment & Securities suggested mechanical staggered buying, allowing for a potential decline to around 5,150 based on the 12-month forward P/E ratio. As the two figures reflect different assumptions, investors can use them as reference points when setting their own risk management criteria.