Korean stocks tumble 8% as investors rush to unwind AI exposure

South Korea's stock market witnessed a sharp decline on Thursday, with the benchmark Kospi index tumbling 8%, as investors rushed to unwind their exposure to AI-related stocks. The global sell-off in semiconductor stocks contributed to the downward pressure, as worries over US Federal Reserve interest rate hikes and funding difficulties for AI companies surfaced.

SK Hynix Inc and Samsung Electronics Co, two major players in the AI trade, saw their stocks drop by more than 9% each. Trading was halted for 20 minutes as selling intensified.

Japan's Nikkei 225 also fell more than 5%, with semiconductor-related shares like Ibiden Co and Kioxia Holdings Corp experiencing significant losses. Investor concerns intensified after US consumer prices rose at the fastest pace in five months in September, raising speculation of more aggressive tightening by the Federal Reserve.

CoreWeave Inc shares plummeted as its bonds approached distress levels, further fueling concerns about the sustainability of AI spending. Analyst Hebe Chen from Vantage Global Prime noted that Korea has become the "shock absorber" for the global AI selloff, with investor sentiment weakened by rising borrowing costs and uncertainties surrounding AI investments.

Foreign investors, primarily driving the sell-off, unloaded US$1.8 billion worth of Kospi equities on Thursday alone, marking more than US$10 billion in sales for the month. The decline in semiconductor stocks has been severe, erasing US$1.6 trillion in market value in just six days. Despite strong earnings reports from Samsung and ASML Holding NV, investor confidence remained low.

The Kospi is on track for its seventh consecutive day of losses, setting the stage for its lowest close since early April. Foreign investors have been actively participating in the sell-off, shedding US$1.8 billion worth of Kospi equities on Thursday morning alone. The decline has impacted Taiwan and Chinese markets as well, with the Taiex gauge falling more than 3% and the Star 50 index of onshore stocks reaching a low not seen since April.

Industry experts warn of persistent weak sentiment and expect the volatile market to persist until clearer guidance on US rates and the outcome of midterm elections emerges. SK Hynix, once a shining example of the AI trade, has now fallen 57% from its summer peak, losing more than US$660 billion in market value from its all-time high.