Only the AI Rope Snapped

The KOSPI closed at 5,554.22 (−7.57%), the KOSDAQ at 760.82 (−7.65%) and the KOSPI 200 at 860.70 (−8.13%). From 7,003.74 on October 2, it lost 20.7% in seven trading sessions. On the KOSPI, 115 stocks rose and 789 fell.

After the intraday report, foreign selling increased by KRW 1.4762 trillion. The index fell again after the circuit breaker, then recovered. The won weakened to 1,351 per dollar during the day before closing at 1,344.6. The intraday report's figures remain unchanged.

Only large caps fell below the July 30 low. Against the July 30 close, KOSPI large caps were −1.6%, the KOSPI 200 −1.4%, KOSPI midcaps +9.0%, KOSPI small caps +8.1% and the KOSDAQ 150 +19.6%. Only the large stocks broke July's low. Midcaps, small caps and the KOSDAQ 150 remain 8–20% above it.

Today's decline came in two waves. The first morning fall stopped at the circuit breaker. After reopening, the market recovered for a little over an hour. A second decline began at 14:15.

The second decline passed the Stage 1 threshold (−8%) and reached −9.29%. The first-stage circuit breaker can trigger only once a day, and Stage 2 requires −15%, so trading did not stop again. From 15:00, the index recovered 1.9% over 15 minutes. TSMC's earnings briefing in Taiwan began at 15:00 Korea time, but there is no evidence yet that it caused the rebound (interpretation withheld). The index moved only 0.04% in the closing call auction. That is worth watching: Section 05 estimates that leveraged and inverse ETFs needed to adjust positions by around KRW 3 trillion, yet the closing auction showed little effect. They may have spread adjustments through futures or made them earlier intraday (interpretation).

The sectors that fell and those that held up separated clearly.

On 10/13, doubts about memory prices hit memory stocks alone. Today, the funding side of AI capex wavered (CoreWeave bonds and Gartner's warning), taking equipment, power and component suppliers down with it. The fact that financial stocks barely fell suggests tension outside Korea's financial system (interpretation).

Basket averages (19 Korean stocks, KRX adjusted prices) were memory −10.6%, semiconductor equipment −15.4%, AI power −11.5%, components −15.4% and defensive +2.9%. Equipment and components fell more than memory.

The gap from 10/13 closed today. Compare 2 memory stocks (Samsung Electronics and SK hynix) with 5 equipment/testing-component stocks from the October 8 close. On 10/13, memory was −12.8% and equipment −3.4%, leaving equipment 9.4 percentage points ahead. Today, memory was −22.4% and equipment −21.6%; the gap narrowed to 0.8 percentage points. This is a comparison Boboo from Sky is observing, not a verdict.

There was one seller: foreign investors. On the KOSPI, foreign investors sold KRW 3.7531 trillion; institutions bought KRW 1.6654 trillion, individuals KRW 1.4450 trillion and other corporations KRW 642.8 billion. Within institutions, financial investment firms bought KRW 2.0728 trillion; pension funds bought just KRW 35 billion. Investment trusts (−KRW 225.3 billion) and private funds (−KRW 300.5 billion) sold instead. Foreign investors bought KRW 217.4 billion on the KOSDAQ.

Foreign selling concentrated in two stocks. Samsung Electronics accounted for KRW 1.5374 trillion and SK hynix KRW 1.1738 trillion, together 72% of foreign net selling. Samsung Electro-Mechanics (KRW 250.5 billion) and Samsung SDI (KRW 182.2 billion) followed. The stock foreigners bought most, HD Hyundai Heavy Industries, drew just KRW 25.6 billion. Purchases were small. Institutions bought KRW 496.8 billion of Samsung Electronics.

• Program trading. KRX daily program-trading totals were arbitrage +KRW 513.8 billion, non-arbitrage −KRW 102.9 billion and total +KRW 410.9 billion. Non-arbitrage selling of baskets of stocks narrowed from −KRW 289.1 billion at 12:25 (Naver intraday feed) to −KRW 102.9 billion at the close. We could not find investor-level program totals through free official channels, so we could not identify the basket buyers.
• Futures. While selling cash equities, foreign investors net bought 5,493 KOSPI 200 futures contracts (about KRW 1.1981 trillion) in the regular session. It was the fourth day, following KRW 1.8273 trillion over the three days 10/12–10/14. Arbitrage programs buying cash equities and selling futures totaled +KRW 513.8 billion that day, and financial investment firms bought more than KRW 2 trillion in cash equities. Foreign futures buying and financial firms' cash-equity buying appear to fit together (interpretation; investor-level arbitrage trading was not verified).
• Short selling. Short-sale trading value was KRW 33.8 billion for Samsung Electronics (0.34% of trading value) and KRW 153.7 billion for SK hynix (1.59%). That is small next to foreign net selling. Most of the selling appears to have involved owned shares rather than borrowed shares (interpretation).

Three mechanisms amplified the losses.

At an emergency afternoon review, the Financial Services Commission chairman said, “Investment relying on excessive debt and credit is risky” (translated), urging financial firms to curb indiscriminate credit provision. Kiwoom and Hana Securities have already blocked new margin loans for Samsung Electronics and SK hynix. From 10/19, a 15% limit on single-stock margin-credit concentration applies.

Money moved from stocks to government bonds and gold. The won weakened intraday, then partly recovered.

When money leaves the country, the won weakens sharply and government-bond yields rise. Today, bond yields fell and the won weakened only 0.5%. Foreign investors were also small net buyers of government-bond futures. A substantial part of their stock-sale proceeds may have stayed in Korean government bonds, or export receipts may have supported the won (interpretation).

It was not just Korea. Across Asia, stocks tied to AI capex took the biggest falls.

• Japan. The broad-market TOPIX ETF was −2.4%, while semiconductor testing-equipment maker Advantest was −15.0%, Lasertec −13.6%, memory maker Kioxia −12.3% and AI-investment holding company SoftBank Group −9.3%. The pattern resembles Korea's.
• Taiwan. Delta Electronics, which makes AI power infrastructure, was −8.7%, falling alongside Korea's Hyosung Heavy Industries and LS ELECTRIC. TSMC, at the center of AI, was only −2.0%.
• China, Hong Kong and India. Shanghai Composite (−1.59%) and Hong Kong's Hang Seng (−1.05%) fell less, but Hong Kong-listed chipmaker SMIC was −3.87%. India's Nifty, with less AI exposure, was +1.88% intraday.

The same rope snapped across several countries on the same day. Today's decline looks more like a repricing of the whole AI-investment chain than a Korean problem. Korea fell most because that chain has the largest weight there (interpretation).

Good figures came from the center of AI. TSMC's Q3 net profit was TWD 763.06 billion (+68.7%), above market estimates of TWD 746.3 billion. Revenue was TWD 1.49 trillion (+50.9%), gross margin 66.4% and operating margin 58.7%. Advanced processes of 7nm or below accounted for 79% of wafer revenue. Its Q4 revenue outlook was USD 52.3–54.3 billion (up 55–61% from 1 year earlier), with gross margin of 65–67%. It raised its full-year revenue-growth outlook to about 44% and kept this year's capex plan at USD 60–64 billion.

Here is today's disconnect. The company actually making AI chips reported record profit and outlook, while funding for those buying the chips and building data centers came under doubt. Today, the market gave more weight to the latter (interpretation).

The government held an emergency stock-market review in the afternoon, chaired by the FSC chairman. It judged that the speed of the decline and trading flows showed some market overreaction. It announced zero tolerance for illegal short selling and price manipulation, activation of contingency plans if needed, and restraint in financial firms' credit provision. There were no new pension-fund or short-selling-system measures, based on reports.

What we still do not know.

• Who bought to reverse the index in the afternoon. Full-day totals show financial investment firms bought more than KRW 2 trillion and pension funds KRW 35 billion, but investor-level program trading and time-of-day trading were unavailable through free official channels.
• When and with which instruments leveraged/inverse ETFs actually adjusted exposure. The roughly KRW 3 trillion in Section 05 is a formula-based estimate.
• The size of liquidation from margin-account collateral shortfalls. It is not published.
• How CoreWeave bonds and AI stocks move in the US tonight. Today's Asian declines priced in those doubts first.
• Whether AI data-center orders actually decline. There are no figures yet.

What snapped today was one rope, not the country. Whether it reconnects depends on the figures from those funding AI.