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Kospi rally broken up by concerns about AI overvaluation, U.S. shutdown

Published: 05 Nov. 2025, 19:16 Updated: 05 Nov. 2025, 19:43

Closing figures for the Kospi and Kosdaq are displayed on a monitor at the Korea Exchange in Yeongdeungpo District, western Seoul, on the afternoon of Nov. 5. [NEWS1]

The benchmark Korean bourse fell sharply on Wednesday amid renewed concerns over the overvaluation of U.S. AI tech giants and fears of a prolonged U.S. government shutdown that rippled through the larger Asian stock market and weighed on Korea's two largest chipmakers, SK hynix and Samsung Electronics.

The Kospi closed at 4,004.42, down 2.85 percent from the previous session, according to the Korea Exchange. The index began sliding from the opening bell and at one point dropped as low as 3,867.81 during intraday trading.

As the market plunged, the exchange triggered a sell-side circuit breaker, known in Korea as a “sidecar,” which temporarily halts program sell orders when the Kospi 200 futures index shifts more than 5 percent or the Kosdaq 150 futures index more than 6 percent for at least one minute. It was the first such intervention in seven months, since April 7.

The global downturn began in New York, where all three major U.S. indexes tumbled overnight as concerns over inflated AI stock valuations spread. The tech-heavy Nasdaq Composite fell 2.04 percent, while the S&P 500 dropped 1.17 percent.

The sell-off was triggered by comments from top executives at global investment banks, including Goldman Sachs and Morgan Stanley.

A screen in Hana Bank's trading room in central Seoul shows the Kospi opening on Nov. 5. [NEWS1]

“We should welcome the possibility that there would be drawdowns, 10 percent to 15 percent, that are not driven by some sort of macro cliff effect,” Morgan Stanley CEO Ted Pick said during a Global Financial Leaders’ Investment Summit in Hong Kong on Tuesday.

Adding pressure, hedge fund manager Michael Burry was revealed to have taken a large short position against Palantir, a leading AI software company, sending its share price down 7.94 percent.

Further weighing on sentiment, the White House announced a ban on the export of Nvidia’s latest Blackwell AI chip to China, dragging Nvidia’s stock down 3.96 percent. Tesla, AMD and Broadcom also fell 5.15 percent, 3.70 percent and 2.81 percent, respectively.

In Seoul, SK hynix fell below the 600,000 won ($415) mark, while Samsung Electronics barely tread above the 100,000 won threshold.

People try the Palantir Maven Smart System during the Defence Security Equipment International Japan at Makuhari Messe in Chiba, east of Tokyo, on May 21. [REUTERS/YONHAP]

Fears over lagging U.S. shutdown

Lingering concerns about the 36-day U.S. government shutdown also chilled investor sentiment on Wednesday. With Washington suspending key economic data releases, voices within the US. Federal Reserve are calling for caution on potential interest rate cuts.

A weaker won added to the woes. The Korean currency closed at 1,449.4 won against the dollar, weakening 11.5 won from the previous day. A weaker won can erode the value of Korean assets and prompt foreign investors to withdraw funds from the local market.

Major blue chips bore the brunt of the sell-off. Samsung Electronics slid 4.10 percent, Hanwha Ocean fell 7.47 percent and Hanwha Aerospace lost 5.94 percent. Aside from a few telecom, finance and biotech stocks, most sectors ended lower. The Kosdaq also dropped 2.66 percent to close just above the 900 mark at 901.89.

Other Asian markets followed suit. Japan’s Nikkei 225 closed 2.5 percent lower at 50,212.27, while Hong Kong’s Hang Seng and Taiwan’s Taiex dropped around 0.07 percent and 1.42 percent, respectively.

With the government shutdown now in its third week, a sign turns away tourists at the entrance to the Capitol Visitor Center in Washington on Oct. 15. [AP/YONHAP]

Analysts see short-term correction

Market analysts said the steep two-day decline in the Korean stock market is likely temporary, pointing to strong export prospects for semiconductors and ongoing government efforts to boost market vitality.

“Foreign investors may continue taking profits from semiconductors after their recent rally, but a full-scale ‘Korean stock sell-off’ is unlikely,” said Han Ji-young, an analyst at Kiwoom Securities. “Energy, insurance and retail sectors also warrant attention.”

“The Kospi may undergo a short correction, but expectations for corporate earnings improvements remain solid,” said Na Jeong-hwan, an NH Investment & Securities analyst, adding that the third amendment to the Commercial Act, expected to be finalized in the National Assembly this month, could help sustain the market’s upward momentum.

However, with institutional investors approaching year-end book closing, some expect the market to remain sluggish through mid-December.

“We’ve seen short-term corrections after roughly 200 days of bull runs in the past,” said Ha In-hwan, an analyst at KB Securities. “Investors should stay conservative this month but prepare for another rally beginning in mid-December.”

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM DO-NYUN [[email protected]]