[Seoul Market Wrap] AI Woes Return, Bleed Markets Dry on October 20th

The market opened higher, driven by a rebound in U.S. semiconductor stocks and recent oversold conditions, attracting bargain-hunting investors.

Market Trends

• ① Intel, DeepSeek, and the Semiconductor Shake-Up

Early in the trading session, the market witnessed a surge, propelled by the strength of U.S. semiconductor stocks and a wave of low-price buying, following recent excessive declines.

The positive sentiment was further bolstered by assessments from major brokerage firms, including Goldman Sachs, who deemed CoreWeave's recent downturn as excessive.

However, the market remained highly sensitive to AI and semiconductor-related news. Gartner's reiteration of concerns, suggesting that AI companies' revenue growth is outpaced by their investment spending, and questioning the feasibility of executing $3.5 trillion in AI investments, sent ripples of uncertainty through the market.

Additionally, Intel's decision to utilize LPDDR5X instead of HBM for its data center GPU D-series added pressure to semiconductor stocks. This was compounded by reports that DeepSeek is developing AI chips with Huawei, reigniting worries about competition from China.

As a result, SK Hynix saw its intraday gains erased, reaching its lowest level since April, amid late-session selling pressure and margin call liquidations. The combination of rising yield rates, increasing oil prices, and foreign selling exacerbated the market's jitters.

Market Sentiment Plunges Amid Rising Rates and Oil Prices

• ### Foreign Selling Intensifies as Large-Cap Stocks Weaken

The recent political unrest in France has impacted the global bond market, leading to sustained pressure on interest rates. Additionally, ongoing attacks between Saudi Arabia and the Houthi rebels have kept international oil prices on an upward trajectory.

These developments, coupled with rising yield rates and oil prices, have become a significant burden on foreign investors' appetite for domestic equities. Foreign Investors have been net sellers of electric & electronics, transportation equipment, chemicals, and machinery stocks. Institutions, too, have been predominantly selling, with the exception of pharmaceuticals, food & beverage, and insurance sectors. On the KOSDAQ, both Foreign Investors and institutions favored the sell side.

SK hynix, a major semiconductor player, broke below its recent intraday low, reaching its lowest level since April. Samsung Electronics, the flagship stock, also experienced a substantial decline.

Beyond semiconductors, construction, shipbuilding, chemicals, and secondary batteries underperformed. Only the gaming sector and a few consumer staples managed to rebound.

• ### Margin Call Liquidations Exacerbate Index Decline

As the index retreated further during the session, margin-related sell orders emerged, amplifying the decline.

Market Sentiment Remains Fragile

Despite strong late-session buying pressure, the market's overall gains were limited, indicating an unstable investor sentiment. As Dan Ives of Wedbush recently put it, "the same scenario is playing out with different cast members," referring to the repetitive flow of market adjustments in response to varying negative news.

While many analysts maintain a positive long-term outlook for the AI industry, the market is reacting sharply to even minor setbacks. The concern is that if AI investments are impacted, it could significantly alter the global economic outlook, leading to heightened caution among investors.

Supply and Demand Dynamics, Sector Performance

Foreign investors led net sell-offs, primarily in the electrical and electronics, transportation equipment, chemical, and machinery sectors. Institutions, meanwhile, were predominantly sellers across most sectors, excluding pharmaceuticals, food & beverage, and insurance.

On the KOSDAQ, both foreign and institutional investors engaged in synchronized net selling. Samsung Electronics and SK hynix faced significant downward pressure once again, with construction, shipbuilding, chemicals, and secondary batteries also weakening.

The gaming sector and certain consumer stocks saw relatively stronger buying interest.

Market Insights

The market's recent movements have been largely driven by sentiment and supply-demand dynamics rather than fundamental performance. Despite the lack of significant downward revisions in semiconductor earnings forecasts, large-cap stocks centered around AI and China-related news have been subject to rapid selling pressure.

Today, the market reacted strongly to Intel's decision to exclude HBM and DeepSikh's report on Huawei's chip development, even though these developments are unlikely to bring about immediate changes in actual demand. This indicates that the market's sensitivity to negative news remains high, even in the face of recent sharp declines.

Supply-side pressures continue to persist. As the index retreated, credit-based trading volumes increased, amplifying the decline. Foreign and institutional investors also showed a selling advantage in key sectors. In the midst of this volatile cycle of sharp drops and rebounds, it appears that time is needed for stable buying momentum to establish itself.

On the other hand, despite the sharp decline in the index, the won-dollar exchange rate fell relatively significantly. Given the continued inflow of foreign capital, it is difficult to attribute this to a broader market-wide exodus of funds. Semiconductor earnings also remain robust. It is necessary to consider the excessive decline driven by sentiment and supply concerns, while keeping an eye on the recent strength of certain sectors and stocks with improving fundamentals.

Bloomberg | Wall Street Journal

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Late-Session Selling Pressure Erases Intraday Gains

In early trade on January 18th, the market witnessed a surge in selling pressure, leading to a reversal of earlier gains. The late-session margin call liquidations caused a significant impact, with key indices erasing their intraday advances.

Yield Rates and Commercialization

The yield rates on government bonds have been a key focus, with investors closely monitoring the commercialization process. As of January 18th, the yield rates stood at [insert percentage], indicating a [interpretation of the rate's significance].

Market Outlook

Market participants are now turning their attention to the upcoming earnings season, which may provide further insights into the health of the economy. The late-January period is expected to bring volatility, with investors assessing the impact of recent developments.

Key Takeaways

• Late-session selling pressure dominated, wiping out initial gains.
• Yield rates and their impact on commercialization are under scrutiny.
• Investors await earnings reports for a clearer market direction.
• Volatility is anticipated in the coming weeks.