South Korean shares fell on Monday as they led declines in Asian markets. Uncertainty over interest rates, and new doubts regarding the viability of artificial intelligence spending, weighed heavily upon technology stocks.
According to a note from the authorities, Kospi, the benchmark index, fell by as much as 5 percent, which was its biggest intraday drop since November 5. This prompted them to temporarily stop trading.
The market has lost some of its gains over the last year, as the two largest chipmakers in the world fell by more than 5% each.
Also, the Korean won has weakened dramatically adding to a risk-off atmosphere.
AI trade under pressure
Investors have been prompted to sell positions on previously hot stocks due to a combination of factors, both global and specific.
The market sentiment has been impacted by the uncertainty that surrounds Kevin Warsh’s nomination to be the new Federal Reserve Chair, as well as volatility in precious materials which have rippled through risk assets.
The technology shares were further impacted by comments made by Jensen Huang. He said that a $100 billion investment proposed in OpenAI “was never a commitment”.
These remarks have raised new questions regarding the pace and scale of capital expenditures in South Korea, which is a major driver for equity growth.
Gary Tan, portfolio manager of Allspring Global Investments in a Bloomberg article, said that Jensen’s remarks likely had an immediate sentiment impact. This was especially true for AI-exposed stocks which have been rallying strongly this year. The remarks were primarily a catalyst for profit taking, and we are seeing some unwinding in the markets.
Global leader, abrupt reversal
Since last year, the Seoul stock market has been one of the strongest in terms of equity prices. This is due to the global appetite for AI and memory processors.
This surge pushed South Korea’s equity market value above $3.3 trillion. It allowed it to surpass Germany as the 10th largest stock market in the world, only behind Taiwan.
The sharp selloff on Monday marked an abrupt reversal in that momentum.
According to data from the market, domestic and foreign institutional shareholders sold net Korean shares while retail investors bought them.
Seoul’s decline reflected a broader regional weakness, as the MSCI Asia Pacific Index fell more than 2%.
Currency Slide
The pressure was evident on the currency markets as well.
It was the biggest daily drop since October. The Korean won underperformed most Asian counterparts amid foreign inflows of equities.
Asia-Pacific market declined Monday, as investors digested data about China’s manufacturing activity in January. Gold prices also extended their loss from the previous session.
Investors reassess monetary policy and technology spending durability, which led to the sharp drop.
The post South Korean stock prices plunge as AI concerns and interest rate worries trigger sharp selling may be updated as new information becomes available.
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