UPDATE: The South Korean Kospi index has plunged 2.9% to close at 4,004.42 today, marking its most significant drop in three months amid rising fears of an artificial intelligence bubble. The index experienced an intraday loss of 6.2%, triggering a sell-side circuit breaker to halt futures trading temporarily, reflecting urgent market panic.
This sharp downturn follows weeks of relentless gains, where the Kospi was celebrated as the world’s best-performing major stock index this year. The fallout comes after a troubling performance in US tech stocks, particularly in the chip sector, with firms like Palantir and AMD reporting losses despite strong earnings, reigniting concerns about overvaluations.
In a concerning trend, foreign investors offloaded a staggering 2.5 trillion won ($1.7 billion) in Korean shares, intensifying broad sell-offs across the market. The Kosdaq index also fell 2.7% to 901.89, marking the first time since August 5, 2024 that both major indices triggered sidecar halts on the same day.
Market analysts are responding to these developments with caution. “After the market zoomed about 20% last month alone, profit-taking was inevitable,” stated Lee Han-young, head of equity investment at Vogo Fund Asset Management, describing the drop as “a natural correction within an extended bull run.”
Meanwhile, the Korean won has weakened sharply, closing at 1,449.40 per US dollar, breaching the 1,450 threshold for the first time in seven months, driven by heavy foreign outflows and a stronger dollar.
In contrast, retail investors have stepped up, buying 2.6 trillion won in Kospi stocks as they absorb the selling pressure from foreign entities. Their focus has been on large-cap firms like SK Hynix Inc. and Samsung Electronics Co. as mom-and-pop investors pour approximately 7 trillion won into domestic equities over just three sessions. Active retail accounts have surged to over 95 million, up 9% since the end of last year, indicating a significant shift in market sentiment.
Despite the day’s turbulence, analysts remain optimistic about the market’s longer-term outlook. The correction, they argue, is healthy rather than indicative of a structural downturn. “Today’s drop was largely driven by profit-taking after recent gains, compounded by the weakness in US tech stocks,” noted Lim Jeong-eun, analyst at KB Securities Co. “The Kospi remains in a clear bull-market zone.”
However, heightened volatility is now a concern as short-selling activity has surged. As of the end of October, short interest on the Kospi reached 12.46 trillion won, up 9% in just a month, reflecting intense hedging activity. Analysts warn that aggressive short-selling in biotech and clean-energy stocks could further amplify the market’s instability.
In summary, while today’s dramatic decline in the Kospi reflects growing apprehensions about an AI bubble and profit-taking from a recent rally, the market appears poised for a potential rebound, buoyed by strong retail investor activity and positive earnings prospects in the tech sector. As the situation develops, market watchers will be keenly observing the effects of these dynamics in the coming days.
