Kospi Triggers Sell Sidecar as Samsung and SK Hynix Slide on US AI Regulation Fears

The Korea Exchange triggered a sell-side sidecar at 10:16 a.m. local time, according to the Korean financial daily MoneyToday. The mechanism pauses program sell orders for five minutes when Kospi 200 futures fall 5% or more from the previous close and stay there for a minute. At 10:39 a.m. the benchmark Kospi was at 5,446.79, down 4.17%, leaving it about 42% below the record of 9,385.59 it reached on June 19, the newspaper reported.

The selloff shows that the political risk to AI infrastructure spending exposed by Tuesday's US midterms now reaches well beyond American markets. Samsung and SK hynix supply much of the memory that goes into AI accelerators, so their shares trade as a proxy for global data centre investment. Korean analysts tied Thursday's fall to concern that Democrats, now in control of both chambers of Congress, could regulate the power use and expansion of AI data centres and so slow demand for chips.

At 10:39 a.m. Samsung Electronics was down 5.96% at 205,000 won and SK hynix had fallen 7.74% to 1,288,000 won, MoneyToday reported. Foreign investors had sold a net 1.125 trillion won of Korean shares, while individual investors had bought a net 1.046 trillion won. The tech-heavy Kosdaq was down 4.30% at 684.19.

The market opened lower before the losses deepened. The Kospi started the session at 5,580.09, down 1.82%, and foreign investors sold a net 78.1 billion won shortly after the open, according to the Seoul Economic Daily. Makers of power equipment, another group whose fortunes are tied to data centre construction, also fell.

Korean chip stocks followed Wall Street, where the semiconductor sector was the exception to a broad rally. In New York on Wednesday the Dow Jones Industrial Average rose 3.03% and the Nasdaq Composite gained 1.44%, but the Philadelphia Semiconductor Index dropped 3.13%.

Money moved into sectors expected to gain from lower oil prices, falling US Treasury yields and Democratic policies. Celltrion rose 7%, and Hyundai Motor was up 6.70% in early trade, according to the Seoul Economic Daily, before trimming its gain to 4.06% by 10:39 a.m. Shares of KB Financial and Woori Financial rose more than 5%, and the internet groups Kakao and NAVER gained 9.62% and 6.32%.

Seo Sang-young of Mirae Asset Securities said the chip selloff was weighing on the market, but that cheaper oil, lower interest rates and a weaker dollar favoured domestic consumption and financial stocks. He said foreign investors' flows into semiconductor shares would probably decide where the index goes next.

Byun Jun-ho of IBK Investment & Securities said uncertainty about the election itself had eased, though worries about data centres remained. Because the Kospi had briefly fallen to about 1 times its 12-month forward price-to-book ratio, he argued, the market may now react more strongly to good news than to bad.