South Korea's Stock Market Sees Largest Market Cap Decline Among Major Economies

South Korea's stock market has recorded the largest decline in market capitalization among major economies, driven by a slowdown in artificial intelligence (AI) investments and concerns over increased regulations on data centers in the United States. The market capitalization, which reached the sixth largest in the world in June, has decreased by over 28% in just five months. During the same period, the market cap declines in the United States and Japan were limited to around 2% and 0%, respectively.

According to Bloomberg data on November 8, South Korea's stock market capitalization fell from $5.42 trillion on June 1 to approximately $3.60 trillion as of November 5, a decrease of about $1.44 trillion or 28.6%. This drop has caused South Korea to fall from sixth to ninth place in global stock market rankings.

The decline in South Korea's market capitalization is the largest among the top seven global markets. In comparison, Taiwan's market cap decreased by 13.6%, from $5.15 trillion to $4.45 trillion, while China's fell by 11.7%, from $15.09 trillion to $13.33 trillion. Hong Kong (-2.5%), the United States (-2.1%), and Japan (-0.5%) experienced relatively smaller declines. Conversely, India's market cap increased by 9.7%, rising from $4.84 trillion to $5.31 trillion.

The significant drop in South Korea's stock market is largely attributed to its heavy reliance on major semiconductor companies. In June, Samsung Electronics and SK Hynix both surpassed a market cap of $1 trillion, buoyed by a boom in AI memory semiconductors. At that time, South Korea emerged as a key market in the AI semiconductor supply chain, surpassing countries like the United Kingdom, Canada, and India.

However, the investment sentiment surrounding the AI industry has shifted. Concerns over the profitability of investments following large-scale fundraising by major U.S. tech companies, coupled with the potential for stricter data center regulations after the U.S. midterm elections, have led to fears of a slowdown in AI infrastructure investments. This has intensified selling pressure across the semiconductor sector, impacting the domestic stock market.

As the stock market plummets and investor sentiment worsens, South Korea's standing in the global asset market is diminishing. In the global market capitalization rankings, India, which was previously behind South Korea in June, has now surpassed it this month, along with the United Kingdom and Canada. As of November 5, the market cap of the United Kingdom stands at $4.04 trillion, exceeding South Korea's $3.60 trillion by $438.8 billion.

The KOSPI index fell below the 5,000 mark last week, dropping from the 9,000s in June to the 4,000s in just four months. Since its peak in June, the market capitalization has evaporated by over 322.48 trillion won. Including the KOSDAQ and KONEX, the total market capitalization of the domestic stock market has decreased from approximately 799.7 trillion won to 460.2 trillion won, a loss of 339.5 trillion won in just over four months.

As investor sentiment deteriorates, the amount of idle funds in the stock market is also rapidly declining. According to the Korea Financial Investment Association, investor deposits fell from a record high of 139.69 trillion won on June 4 to 89.23 trillion won on November 4, a decrease of 36.13% (50.47 trillion won).