The KOSPI index has plunged below the 5000 mark as uncertainty surrounding artificial intelligence (AI) data centers has intensified following the Democratic Party's decisive victory in the U.S. midterm elections. Major domestic securities firms report that the level of uncertainty has exceeded predictable boundaries.
On November 8, a summary of short-term forecasts from leaders at major securities firms, including Yuanta Securities, Meritz Securities, Shin Young Securities, and Kiwoom Securities, indicates that increased market volatility is inevitable for the time being. They believe that the significant drop in market predictability renders short-term index band projections meaningless.
Choi Hyun-jae, head of the research center at Yuanta Securities, stated that whether the current index level can hold will be a critical turning point for future market conditions. If the KOSPI can maintain the 5000 level at closing, it could establish confidence in that range as a bottom, leading to a stabilization phase characterized by prolonged adjustments.
Conversely, if the index falls below 5000, it could trigger excessive declines, entering an 'undershooting' phase, exacerbated by foreign selling and panic selling from individual investors, along with forced liquidations of margin trades.
Choi noted, "Currently, the forward price-to-earnings ratio (PER) for the KOSPI at the 5000 level is in the low 13s, and the price-to-book ratio (PBR) is below 1, indicating a clear undervaluation. However, due to significant psychological pressure, it is difficult to definitively determine the bottom range in the short term."
Lee Jin-woo, head of the research center at Meritz Securities, assessed that the current stock price level has entered an extreme decline phase. He explained, "The current crash is primarily due to liquidity shocks in the financial markets stemming from the impact of the U.S. midterm elections and concerns over AI industry regulations, rather than a debt crisis in the real economy. While the process of shock mitigation will unfold, volatility in both directions is unavoidable for the time being."
He added, "It is essential to monitor the valuation assessments of AI companies through the upcoming Antropic IPO and observe the U.S. authorities' policy responses. Predicting short-term index bands is meaningless for now."
Lee Jong-hyung, head of the research center at Kiwoom Securities, also stated that it is challenging to pinpoint the index bottom at this time. He indicated that concerns over rising long-term U.S. interest rates and deteriorating cash flow due to increased AI investments could lead to high volatility through the first half of 2027. However, he anticipates that as the second quarter progresses, macroeconomic uncertainties will ease, and the excess cash flow of hyperscalers will stabilize, which could resolve valuation discounts if domestic corporate earnings remain consistent.
Kim Hak-kyun, head of the research center at Shin Young Securities, also refrained from providing specific index bands but noted that the market has entered an oversold phase. He remarked, "The current adjustment is comparable to the average decline rate (-49%) seen in eight bear markets since the 1980s. While it is difficult to predict a short-term bottom, if viewed over a six-month horizon, the current stock price appears to have reached a bottoming phase."
Concerns regarding the AI regulation fears that triggered the market crash have been described as an 'overreaction,' with calls for a review of performance differentiation among companies.
Cho Soo-hong, head of the research division at NH Investment & Securities, explained, "The Democratic victory has spread fears of increased AI regulation, leading to algorithmic selling and hedge fund position liquidations. However, given the ongoing U.S.-China AI power competition, the likelihood of the U.S. completely blocking data center construction is limited." Hanwha Investment & Securities also noted that since 75% of the projects scheduled for completion in 2027 have already begun, the actual impact is expected to be limited.
On the other hand, concerns about the sustainability of AI investments and supply chain issues have emerged for major domestic semiconductor firms like Samsung Electronics and SK Hynix. Lee Jong-hyung emphasized, "While demand for high-performance memory remains a long-term growth driver, it is crucial to assess the actual profitability of AI investments and the potential for increased supply from Chinese competitors. Future stock price differentiation will depend on the competitiveness of high-value products like high-bandwidth memory (HBM) and their connection to actual profits."
Experts advise broadening the range of sectors to respond to the oversold conditions or focusing on index-centric investments to mitigate risks.
Lee Jin-woo stated, "Given that we are currently in an oversold phase, the benefits of selling are low. It is necessary to expand the range of sectors that are relatively less affected by uncertainties stemming from the U.S. blue wave." He suggested diversifying into sectors such as banks and holding companies, which have effective shareholder return momentum, as well as construction and transportation sectors benefiting from foreign net buying and the bio sector, which is expected to gain from easing interest burdens.
Cho Soo-hong highlighted the need to pay attention to sectors like energy storage systems (ESS) and power equipment, which have both Democratic policy benefits and excessive decline attractiveness, particularly in light of the significant drop in the semiconductor sector this week. Choi Hyun-jae also predicted that even with increased regulations in the U.S., the demand for memory semiconductors will remain stable due to the continued utilization of allied country data centers for computational power.
Meanwhile, caution regarding individual stock volatility persists. Kim Hak-kyun recommended, "In a highly volatile market, it is more effective to adopt a strategy centered around KOSPI 200 index exchange-traded funds (ETFs) that can reduce individual volatility risks rather than concentrating on specific stocks."
* This article has been translated by AI.
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