KOSPI Plunges More Than 3% on U.S. Midterm Election Shock… AI Investment and Semiconductor Demand Remain Resilient

KOSPI Falls More Than 3% as U.S. Midterm Results Come In… Foreign Investors Sell More Than 2 Trillion Won The KOSPI opened higher, tracking gains on Wall Street, but extended its losses as results from the U.S. midterm elections showed Democrats gaining ground. It fell as low as the 5,400 level intraday before dropping 3.7% to around 5,438 points later in the session. The KOSDAQ also fell below 700, losing around 2.5% to 685–686 points. Foreign investors initially sold about 1.7 trillion won net on the Korea Exchange in morning trading, then increased their net selling to more than 2 trillion won. Individual investors initially bought more than 1.2 trillion won net and later around 1.6 trillion won. The won-dollar exchange rate fell to 1,338 won, down about 6.60 won from the previous day. Nvidia’s planned $1 billion investment in Naver, scheduled to flow in by November 6, was also cited as a factor affecting the exchange rate. Japan’s Nikkei average fell more than 3.5%, while Taiwan’s weighted index lost more than 2%. The Shanghai Composite and Hang Seng indexes also declined, although Chinese stocks fell relatively less, supported by government stimulus measures. With vote counting still underway, Democrats were leading in the House, while the results in closely contested Senate races were expected to become clearer in the afternoon. Hanjin KAL Ownership Contest Rekindled… Hoban Challenges Cho Won-tae Side for Top Shareholder Position Hanjin Group Chairman Cho Won-tae consolidated control after past disputes among members of the Hanjin family and a shareholding contest involving the KCGI fund. Hoban Group, which had participated in the fund, began indirectly acquiring shares in Hanjin KAL in March 2022 and has since increased its holdings by purchasing the fund’s stake and shares held by Pan Ocean, among others. Although some in the market expected Hoban to abandon the contest, it continued buying shares. Until recently, Cho’s side was reported to hold 20.57%, compared with 20.15% for Hoban. Stakes held by the National Pension Service, the Korea Development Bank and Delta Air Lines, which has a partnership with Korean Air, are considered key factors in the control structure. Delta, which holds about 14–15%, has been viewed as a friendly shareholder. One scenario discussed was that Hoban could acquire KDB’s stake if it is eventually sold, narrowing the gap between the two sides. Hoban asked the Fair Trade Commission to review the business combination, seeking confirmation of whether it had become the largest shareholder. In response, Cho’s side announced plans to purchase an additional stake worth about 37 billion won to retain its position as the largest shareholder. The method could vary, from open-market purchases to a block deal involving a friendly shareholder’s stake. The dispute has expanded beyond the shareholding contest itself into a battle over the symbolic status of largest shareholder. Ownership Stakes of Hanjin KAL’s Major Shareholders — Compares the Hanjin KAL stakes held by Chairman Cho Won-tae’s side and Hoban. Chairman Cho Won-tae’s side holds 20.57%, more than Hoban’s 20.15%. AMD Posts Strong Results… Expectations Rise for Samsung Foundry to Win HBM Base-Die Orders AMD reported revenue of $13.4 billion and adjusted earnings per share above market expectations. Its revenue guidance for the next quarter also exceeded forecasts, with the company projecting growth of 27% from the previous quarter. Data center revenue topped $8.5 billion, a record, rising 97% year over year and 27% quarter over quarter. The data center business accounted for about 63% of total revenue. AMD said demand from data center customers exceeded its supply capacity and that it was discussing long-term supply agreements with customers. The company also said it was confirming customers’ plans for securing sites and power for data center construction before supplying products. The PC and gaming businesses were affected by slowing PC demand, but growth in the data center business was offsetting that pressure. Reports said Samsung Electronics would produce HBM base dies for AMD and Nvidia at its Taylor, Texas, fab. If the reports are accurate, expectations could grow that AMD will expand its use of Samsung Foundry as TSMC’s production capacity remains tight. However, the reported order has appeared in some media outlets and should not be treated as a confirmed contract. AMD Data Center Revenue Growth — Compares growth in AMD’s data center revenue. Year-over-year growth of 97% is higher than quarter-over-quarter growth of 27%. Super Micro Raises Full-Year Revenue Outlook on AI Server Demand Super Micro Computer confirmed its previously released preliminary results in its formal earnings announcement. Revenue, adjusted gross margin, adjusted earnings per share and guidance all exceeded market expectations, and the company raised its full-year revenue outlook, citing strong demand for AI infrastructure. Quarterly revenue was reported to have grown about fourfold from a year earlier and around 80% from the previous quarter. The company said securing sites, power and buildings was as important as GPUs for data center construction, and that it had access to the necessary resources. It also noted that demand for CPU-based servers was increasing as AI use expanded from training to inference. A higher share of large AI projects weighed on the overall gross margin, but the company said profitability across customer groups remained reasonable. AI Data Center Construction Continues, but Community Regulation and Power Costs Pose Risks Democratic candidates argued that public land and power grids should not be made readily available to companies for data center construction. Their concerns included the possibility that large-scale power consumption could push up electricity bills, while local residents bear the burden of transmission infrastructure, water use, noise and heat, despite limited job creation and benefits for the local economy. Calls were also made for companies to shoulder more of the costs of land, power and transmission infrastructure and return benefits to communities. Such an approach could delay permits for new data centers, but observers said it would be difficult to halt projects that had already received approval. Large cloud companies have already advanced much of the land rezoning and permitting process. However, tighter regulation in areas such as Texas and Ohio, where future data center construction plans are concentrated, could cause delays and additional costs across the industry. Demand for AI semiconductors was also reflected in supply shortages in China and efforts to obtain chips through indirect channels. Smuggling methods reportedly involved separating HBM from lower-cost processors for use in China, and reports said the memory could be used in Huawei’s next-generation Ascend 960 DT. Nvidia was reported to have told new customers that at least 51% of the ownership of a data center operator must be held by parties outside China, in an effort to prevent Chinese companies from making purchases through intermediaries. Falling Long-Term Rates Could Ease AI Investment Costs… A Counterpoint to Election Shock Expectations that long-term interest rates would fall grew amid forecasts that Democratic control of Congress could constrain fiscal expansion and defense spending under the Trump administration. In Asian trading, the U.S. 10-year Treasury yield declined to 4.891%, while 20-year and 30-year yields fell by about 4 basis points to around 5.3%. Some observers also interpreted inflation, oil prices and electricity costs as factors that had influenced voters. The substantial cost of financing data center investment was cited as a risk to the AI industry. Big tech companies are deploying their cash reserves for investment, and if expected returns fall short of plans, their reliance on external financing could increase. Lower interest rates could reduce companies’ borrowing costs and support the data center investment ecosystem, but tighter Democratic regulation could weigh on construction of new facilities, making it important to consider both factors. Diplomatic Moves on the Middle East and Ukraine Ahead of U.S. Election… Tensions Around Hormuz Ahead of the election, President Trump announced what he described as an agreement to end support for Israel at year-end, but questions were raised about the reported amount and timing of the support and how it related to existing military aid commitments. The United States has a memorandum of understanding to provide Israel with $3.8 billion in annual military aid, an arrangement that runs through 2028. Oil prices, which had fallen immediately after the news, rose again late in the session, reflecting mixed market reactions. Reports also said the United States had approved a draft memorandum of understanding proposed by Qatar between the United States and Iran, but it was unclear whether the two sides had reached an agreement. There were signs that channels of communication with Iran remained open, but it was uncertain whether the diplomatic process would lead to an actual easing of tensions. Real-time reports that Iran had detonated mines south of the Strait of Hormuz and attacked an oil tanker added to geopolitical risks. On Russia and Ukraine, President Trump also referred to a diplomatic solution shortly before the election. Ukrainian President Volodymyr Zelensky was reported to have confirmed that talks involving Ukraine, Russia and the United States were scheduled to take place in Abu Dhabi on November 10–11. Whether the talks take place and ease the risk of war remains a factor to watch for its potential impact on global oil prices and investor sentiment. U.S. Chip Restrictions on China Cloud Solidigm’s Investment Plans The United States is restricting equipment exports to curb China’s production of advanced semiconductors. South Korean companies with manufacturing facilities in China have sought blanket approvals for equipment needed for mature-node processes and essential upgrades, but approvals have reportedly been limited to annual renewals, with additional equipment imports also denied. This has raised concerns that South Korean factories in China could fall behind in equipment competitiveness. Reports said Solidigm was considering building two production lines in succession in the Massena area of New York State, each with monthly capacity of 100,000 wafers, and was in investment talks with the state. Its proximity to Micron’s manufacturing facilities was cited as an advantage, allowing it to use existing infrastructure. However, amid uncertainty over U.S. approval for equipment imports to its China plant, negotiations were reportedly continuing over whether to proceed with the New York investment or shift it elsewhere. Chinese authorities have introduced stimulus measures in response to the stock market decline, including making share buybacks easier and supporting financing backed by existing assets. Efforts to encourage insurers and institutional investors to buy stocks were also discussed. The host emphasized that the authorities’ attention and signals—that they are monitoring market conditions and will respond—matter more than a large-scale injection of public funds. [Kwangsoo's Take] Ownership Battles Expose Conglomerates’ Low Stakes and Weak Shareholder Policies Lee Kwang-soo viewed the Hanjin KAL ownership contest as a case exposing weaknesses in the governance of South Korean conglomerates. An owner who controls an entire group while holding about 20% of its holding company is vulnerable to a management-control dispute, he argued, adding that Hoban Group’s challenge targeted this weakness of a low ownership stake. To protect control, he said, companies should not wait until a dispute erupts to seek allies, but should secure shares through measures such as mergers and build a base of friendly shareholders over the long term. If a company is well managed and consistently pays dividends and returns capital to shareholders, existing shareholders have a basis for supporting its owner. It is difficult to build a base of friendly shareholders by asking for help only in a crisis; companies must earn trust through shareholder policies and business performance. Lee also criticized Hoban Group, arguing that it should use funds accumulated through its real estate business for industrial investment, factory construction and job creation rather than a shareholding contest. He described the dispute as an example of potential change in the capital market, as the past practice of maintaining control through cross-shareholdings of treasury shares among conglomerates has become more difficult. He stressed that listed companies have an obligation to provide investors with information, given that they raise funds in the market and controlling shareholders can monetize their stakes. Noting that investors must infer the business operations of many companies from their financial statements alone, he also called for mandatory investor relations materials. [Kwangsoo's Take] Companies Must Invest in the Next Era, Even if It Cannibalizes Existing Business Citing Kodak and Netflix, Lee Kwang-soo argued that companies must accept cannibalization, in which a new business eats into an existing one. Kodak invented the digital camera in 1975 but failed to develop the new technology because it wanted to protect its film business, eventually filing for bankruptcy protection in 2012. Netflix, by contrast, shifted its focus from the DVD rental business that had fueled its growth to streaming. Its subscribers and share price plunged during the transition, but it later achieved long-term growth. Google is pouring money into artificial intelligence even as AI challenges its search advertising business. Apple, by contrast, has appeared focused on protecting its existing hardware business. Lee said it was impossible to determine the winner based only on short-term results and share-price movements, but argued that it was important for companies to have the courage to sacrifice some current profits and prepare for future businesses. He cautioned investors to beware of investment solicitations that promise to recover losses all at once during a market downturn, as well as channels impersonating the host. Lee said he does not recommend individual stocks or operate a for-profit investment business, and advised investors to decide in advance how much loss they can bear and what proportion of their assets to hold, then act according to plan. Rather than being swayed by short-term volatility, investors should take a long-term view of the market while following risk-management principles, such as reducing their exposure when it falls below a threshold they have set.