KOSPI Falls More Than 3% on AI Profitability Concerns, Focus Turns to Memory and Corporate Governance

The KOSPI fell more than 3% intraday, sliding to the 5,658 level, while the KOSDAQ dropped about 3.1% below 710. Losses widened late in the session, with the KOSPI down 3.6% near 5,646 and the KOSDAQ down 3.7% near 707. A global pullback in AI investment sentiment and weakness in semiconductor stocks weighed on the domestic market.

Foreign investors sold net shares worth more than 900 billion won on the Korea Exchange and more than 100 billion won on the KOSDAQ, while also selling nearly 600 billion won in the futures market. Institutions, which had supported the market in the previous session, also turned to selling; financial investment firms and pension funds joined the selling late in the day. Foreign net selling expanded to the trillion-won range intraday.

The won-dollar exchange rate fell about 7 won from the previous session to around 1,337 won. Reports that currency conversions related to Nvidia’s strategic investment in Naver had entered the Seoul foreign-exchange market were cited as a factor behind the won’s rise. The market struggled to find direction as concerns about AI investment coincided with uncertainty over interest rates, global oil prices and geopolitics.

Voting in the U.S. midterm elections begins on the evening of the 3rd local time. The earliest exit polls can be seen from the morning of the 4th in Korea. Under JPMorgan’s scenarios, the probability of a Democratic sweep of both chambers, or a blue wave, was about 66%, while the probability of a divided Congress in which Democrats take only the House was about 26%. A Republican hold on both chambers was put at about 7%.

Markets were focused not only on the election outcome itself but also on the potential relief from the disappearance of uncertainty. The S&P 500 has often risen after past midterm elections, and a tendency for markets to rise for more than three months after an election was also noted. One analysis found that returns were twice as high when the two parties split control of Congress as when one party controlled both chambers.

If Republicans retain the Senate, an environment more favorable to data centers and the AI industry than one under Democratic control could persist. However, higher defense spending, the Iran issue, the fiscal deficit and Treasury issuance could add to interest-rate pressures. If Democrats gain more power to check the administration through Congress, support for clean energy and electric vehicles could strengthen, while budget disputes and the risk of a federal government shutdown could also emerge. The KOSPI has also often risen after past U.S. midterm elections, though one interpretation is that such gains may reflect a recovery from pre-election declines once uncertainty subsides.