KOSPI Plunges on Concerns Over AI Data Center Regulation, Then Cuts Losses After Falling Below 5,000 Intraday

KOSPI Falls Below 5,000 Intraday, Then Cuts Losses Amid Foreign Selling The KOSPI plunged by as much as about 8% early in the session, falling below 5,000, while Samsung Electronics briefly dropped to KRW 175,000. It later pared losses on bargain buying and at one point recovered above 5,100, but weakened Asian markets in the afternoon sent the KOSPI back down to the 5,070 level, a decline of 5.8%. The KOSDAQ also fell more than 7% intraday before trimming losses, but traded around 647 in the afternoon, down 4.5%. Foreign investors recorded net sales of more than KRW 1 trillion on the KOSPI, with the amount later rising to around KRW 1.2 trillion. Foreign selling also continued on the KOSDAQ, while foreign investors were observed turning net buyers in the futures market. Institutional buying was concentrated among financial investment firms, and pension funds also shifted to buying during the session. Retail investors bought cash equities, but reduced the scale of their purchases from early in the session. The won-dollar exchange rate rose by about KRW 2.40 from the previous day to around KRW 1,359. Volatility in the KOSPI was severe enough to trigger a circuit breaker early in the session, while bargain buying helped recover some of the losses during ongoing trade. However, major Asian markets including Japan, Taiwan and Shanghai weakened again in the afternoon, limiting the domestic market's recovery. KOSPI and KOSDAQ Decline Rates — The decline rates of the KOSPI and KOSDAQ were compared. The KOSPI fell 5.8%, more than the KOSDAQ’s 4.5%. Nasdaq Drops 5%, Semiconductor Index 12% as Fear Spreads On Wall Street, the Nasdaq fell more than 5% and the Philadelphia Semiconductor Index plunged 12%. Concerns that the Democratic election victory could curb new data center investment and permitting weighed on markets, compounding anxiety over AI companies' capital expenditure plans and hedge funds' leveraged positions. In the U.S. market, concerns over delays to data center investment were accompanied by reports of a bill seeking to restrict superintelligence research, a weak outlook for Qualcomm's handset business, Meta's remarks about difficulties building data centers, and the rise of China's AI industry. With negative headlines coming in quick succession, some observers said investors sold without having time to verify the details of each news item. Markets also focused on the unusually large decline in the Nasdaq, which fell more than 5% in a single day. Unlike events with clear causes, such as the COVID-19 pandemic or tariff shocks, concerns over slower data center investment and doubts about whether AI growth had peaked amplified the decline. U.S. stock futures rebounded, but the speed at which they could recover about half of the losses after the plunge was seen as a near-term indicator to watch. Large-Cap Stocks Trim Losses as Samsung Electronics and SK Hynix Volatility Rises Samsung Electronics fell as low as KRW 175,000 intraday, a decline of more than 13%, before paring losses to the KRW 190,000 range. A long lower shadow formed amid subdued trading, suggesting that selling pressure had eased somewhat. Some cited a dividend yield of about 8% based on a share price of KRW 180,000, while cautioning that this should not be taken as a guarantee of a floor for the stock. SK Hynix also pared losses after a sharp intraday drop, but remained in negative territory. LG Energy Solution turned higher intraday, while Samsung Biologics recovered its early losses. On the KOSDAQ, Alteogen fell more than 4%, Jusung Engineering trimmed losses after dropping more than 15% early in the session, and Robotis turned higher. Foreign selling continued, centered on semiconductor heavyweights such as Samsung Electronics and SK Hynix. Institutional flows relied heavily on buying by financial investment firms, making them difficult to characterize as an active bet on a rally. Market participants said investors should look beyond the price decline to whether earnings and valuations could be reassessed after the plunge, and whether foreign selling would abate. Big Tech Investment Plans and Semiconductor Company News Send Mixed Signals Google announced plans to invest an additional $17 billion in a data center in Wyoming. Alphabet and Nvidia also signaled their determination to continue data center investment. Policy uncertainty has increased in some areas, including Texas, following the Democratic victory, but this was cited as evidence that difficulties in a particular region do not necessarily mean investment will be halted altogether. Reports that Microsoft could reduce or delay investment spending on some data center projects fueled market concerns. However, some interpreted the move as an effort to align funding with construction progress and tighten project management, rather than a cut to overall planned capital expenditure, given delays to construction and power connections on the relevant projects. The postponement of an expansion option due to a power shortage in Texas was also seen as related to existing power bottlenecks rather than a policy shift. Qualcomm faced growing earnings concerns due to weakness in its handset business, although AI-related revenue remained solid. Observers said further confirmation was needed to determine whether reports that Micron had halted construction of a new plant in Taiwan reflected pressure in labor negotiations or an actual change in plans. They said there was insufficient evidence to interpret the report as a turning point toward reduced semiconductor capacity expansion, and that actual investment plans and labor negotiations in Taiwan should both be monitored. Data center operator IREN's share price rose more than 12% after its earnings release. The company cited a five-year contract under which the customer prepays 90% of the cost of GPU purchases, and said it had secured more than $4 billion in funding. The target date for reaching its annual recurring revenue goal was pushed back from the end of 2026 to January 2027, with the company noting that supplier deliveries and customer design changes could delay it until February. Data Center Construction to Continue, but Power, Chip and Water Bottlenecks Persist Analysts said data centers already in operation, facilities under construction and projects with finalized contracts would be difficult to reverse. Including projects at an early stage, more than 30 gigawatts of capacity was already underway in Texas alone. These projects are expected to continue with little change for at least the next two to three years. Even after a data center receives permits, it still needs power, semiconductors and water to operate. With power grids, transmission networks and equipment already in short supply, permits alone cannot immediately accelerate construction. Delays in securing power could lead operators to postpone additional investment or expansion plans, but this should be distinguished from a halt to the AI data center industry as a whole, analysts said. Big Tech companies could respond to concerns raised by local communities by pursuing their own power generation and offering to cover electricity costs and additional taxes. Transmission lines, the use of public and private land, water charges, environmental impact and benefits for local residents are also issues to be resolved as projects move forward. Political scrutiny could make permitting and community consultations more difficult than in the past, but companies may be able to respond by changing sites or shifting investment to other regions. Regulatory Concerns After U.S. Election, but No Sign of a Complete Halt to AI Investment Concerns mounted that new data center investment could face obstacles after Democrats took control of both the House and Senate. A Democratic lawmaker's introduction of a bill to ban AI superintelligence research also weighed on investor sentiment. However, some analysts said the election platform was focused less on ending the AI industry than on determining who should bear the costs data centers impose on power, water and public land, as well as rising electricity bills for residents. Turning data center regulations into laws or rules would take time given the makeup of Congress and the legislative process. The possibility that President Trump could veto legislation also increases the potential for policy clashes. Analysts said it was difficult to conclude that hard-line remarks by individual lawmakers immediately after the election would lead to a nationwide halt to AI investment, and forecast that companies could respond to political demands by shouldering more costs and increasing engagement with local communities. President Trump linked the market decline to the Democratic election victory and cited losses to retirement accounts. Because stocks make up a large share of U.S. households' retirement plans and financial assets, a market downturn can reduce voters' wealth. Analysts said deteriorating share prices and employment could also become a political burden for Democrats, potentially leading to adjustments as hard-line campaign pledges are translated into actual policy. Interest Rates and Foreign Fund Flows Key Variables for a Rebound U.S. interest rates were identified as a key factor in determining the market's direction. Analysts said funds tend to flow into equities about two to three months after the U.S. 10-year Treasury yield peaks and begins to fall. If lower interest rates and stable oil prices persist, stocks such as Big Tech could rebound first, but on this day the deterioration in sentiment toward semiconductor stocks prevented positive factors from being fully reflected in share prices. Analysts also cited an assessment that U.K.-based funds accounted for a substantial portion of the foreign selling that has continued in the Korean market this year. One report estimated net sales by U.K.-based funds at about KRW 97 trillion from January to September, potentially driven by a desire to convert assets to cash ahead of changes to inheritance tax and pension rules in the U.K. If much of that selling has already run its course, the existing pressure from foreign investors could ease, though markets will need to watch whether deteriorating sentiment stemming from the U.S. creates a new source of selling. Analysts said market sentiment had swung to an extreme, with share prices failing to rise on positive news such as interest-rate cuts or the end of a war, while reacting sharply to negative news. With investors needing to consider interest rates and inflation alongside elections, AI investment, data center power supply and corporate earnings, it is more difficult than in the past to judge the market's direction. Changes in interest rates and whether AI investment is actually scaled back were cited as key to calming foreign selling and supporting a market recovery. [Noon Salon] Data Center Investment Concerns and How to Navigate a Market Plunge CEO Park Jung said the Democratic victory was more likely to lead to demands that companies take greater responsibility for the burden data centers place on power, water and local communities than to stop data center construction itself. Projects already operating or in the construction or contract stages would be difficult to reverse, he said, adding that companies could respond to political scrutiny by bearing the costs or finding other locations. Park Jung stressed that investors should distinguish headlines from the details of actual projects to determine whether markets are overreacting to negative news. Delays to investment due to data center power shortages and Democratic regulatory concerns are separate factors, he said, while Microsoft's capital expenditure adjustments could reflect project-by-project spending management rather than an overall reduction in investment. Regarding semiconductor makers' expansion plans, he said further confirmation was needed to determine whether reports of Micron's Taiwan plant reflected an actual investment halt or statements made during labor negotiations. [Kwangsoo's Take] Review Cash Reserves and Investment Principles Even Amid Fear Lee Kwang-soo stressed that in a market plunge, the first thing to assess is not only the scale of the decline but also the conditions for a recovery. Past periods in which markets fell sharply over two days and then recovered slowly were concentrated around crises that shook the financial system itself, such as the IMF financial crisis, the subprime crisis and the collapse of the dot-com bubble. Since this plunge reflects overlapping concerns about data center investment and the election results, he argued that investors should assess the actual impact of the news rather than immediately equating it with those crises. Lee Kwang-soo explained that lower-end KOSPI forecasts issued by domestic securities firms reflected a price-to-book ratio (PBR) of around 1. He cited estimates that put the range at roughly 4,800 to 5,500, while cautioning that this did not mean those levels were an absolute floor. Share prices move significantly not only with corporate earnings but also with the valuation multiples assigned by the market, and when those multiples shift sharply, as they are now, both declines and rebounds can be amplified. Lee Kwang-soo said that investors could choose to trim some holdings to secure cash, but that being unable to sell stocks was different from deciding not to sell according to a plan. Investors should establish principles suited to their loss tolerance and funding needs, he said, distinguishing between exiting the market entirely out of fear and deliberately adjusting portfolio exposure. Rather than making categorical predictions about the market's future, he added, investors should monitor interest rates, foreign selling and changes in AI investment plans.