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

South Korea's stock market plunged 8% on Thursday as investors rushed to unwind their positions in the AI sector. SK Hynix, once a symbol of the AI trade, saw its shares fall more than 9%, while Samsung Electronics also dropped significantly. The panic selling was triggered by concerns over Federal Reserve interest rate hikes and AI funding issues.

Korea's stock exchange temporarily halted trading due to the intense selling. Japan's Nikkei 225 also declined by over 5%, with semiconductor-related shares like Ibiden Co and Kioxia Holdings Corp among the hardest hit. The US consumer price data showed an unexpected rise in September, fueling bets on more aggressive Fed tightening.

CoreWeave Inc, a key player in the AI trade, saw its shares plunge as its bonds approached distress levels, further intensifying concerns over rising borrowing costs and the sustainability of AI spending. The US market has lost a staggering $1.6 trillion in semiconductor stocks over a six-day period. Despite strong earnings from Samsung and ASML Holding NV, investors remain pessimistic.

Foreign investors, particularly from Taiwan and China, have been the main drivers of the selloff, dumping billions of dollars worth of Kospi equities. The situation has weakened investor sentiment, with many expecting volatility to persist until more clarity emerges on US rates and the upcoming midterm elections. SK Hynix's stock has plummeted 57% from its summer peak, now valued at less than 5 times forward earnings estimates.