Seoul:South Korea's benchmark Korea Composite Stock Price Index (KOSPI) faced a significant drop on Friday due to fears over investments in artificial intelligence (AI) data centers. The concerns stemmed from the potential impact of a Democratic Party victory in the U.S. midterm elections, which could slow the AI spending boom. The index briefly dipped below 5,000 points during intraday trading, reflecting an over 8 percent plummet, before closing at 5,059.69, down 6.02 percent.
According to Yonhap News Agency, the market reaction was partly influenced by a tech sell-off on Wall Street. Shares of major companies like Samsung Electronics and SK hynix saw substantial declines of 6.35 percent and 10.44 percent, respectively. Analysts noted that with Democrats securing majorities in both the U.S. Senate and House of Representatives, President Donald Trump's power might be weakened, possibly affecting the pace of AI data center development.
The drop in KOSPI coincides with a sharp fall in the tech-heavy NASDAQ, which declined over 5 percent, following the Democratic Party's gubernatorial win in Texas, a key state for AI data center initiatives. Analysts, including Han Ji-young from Kiwoom Securities, predict continued market volatility, indicated by the KOSPI 200 volatility index (VKOSPI) reaching a three-month high of 64.74.
Yoon Chang-yong, a senior analyst at Shinhan Financial Investment, highlighted that global concerns over AI investment spending are contributing to market unease. Meanwhile, Daishin Securities suggested the market's reaction might be excessive, with analyst Lee Kyung-min noting that while the Democratic win may delay AI data center construction, a full-scale suspension is unlikely.
In response, the South Korean government has announced measures to stabilize market volatility, including easing requirements on leveraged investments for the next three months. Finance Minister Lee Hyoung-il emphasized the need for proactive measures to manage the stock market's reaction to international developments, while maintaining that South Korea's economic fundamentals are strong.
The South Korean won also weakened against the U.S. dollar, closing at 1,356.6 won per dollar, a decrease of 14.5 won from the previous session, as foreign investors remained net sellers of local stocks.