KOSPI tumbles as Democrat sweep fuels AI infrastructure concerns

Korean stocks plunged Thursday, as concerns over tighter U.S. regulation of artificial intelligence (AI) and data center development triggered a broad sell-off in semiconductor shares following sweeping Democratic victories in the midterm elections.

The benchmark KOSPI opened at 5,580.09, down 1.82 percent from the previous close, according to the Korea Exchange. It remained in negative territory throughout the session, eventually closing at 5,383.80, down 5.28 percent.

The decline was driven largely by a rout in Samsung Electronics and SK hynix, the country’s two semiconductor heavyweights, which together account for roughly half of KOSPI’s market capitalization. Their outsized weight left the index particularly vulnerable to a shift in sentiment toward the chip sector.

SK hynix plunged 9.46 percent to 1.26 million won, while Samsung Electronics tumbled 7.57 percent to close at 201,500 won.

The weakness in Korean chip stocks followed a sell-off in related U.S. shares overnight. Nvidia fell 3.17 percent, while chipmakers Micron and SanDisk lost 7 percent and 7.91 percent, respectively, amid concerns that a tougher regulatory environment could slow the expansion of AI infrastructure.

The U.S. midterm elections led to a historic Democratic sweep, with the party taking control of both the Senate and the House of Representatives. The result raised concerns that a Democratic-led Congress could pursue stricter oversight of AI development and investment, while political support for expanding data center infrastructure could become less certain.

Investors are particularly concerned that delays in data center construction could prompt major cloud-computing companies to reassess the timing of planned investments. That, in turn, could cloud the outlook for demand for high-bandwidth memory and other advanced chips supplied by Korean manufacturers.

The election outcome, however, has also created potential opportunities for other sectors, particularly renewable energy and pharmaceuticals.

Shares of Korean drugmakers and biotech companies rallied on expectations that Democrats would push ahead with policies aimed at lowering health care costs and supporting clean energy.

On health care, the party’s policy agenda includes efforts to preserve Medicaid funding and expand government assistance for health insurance, potentially creating a more favorable environment for lower-cost alternatives to branded medicines.

Korean biosimilar makers could benefit if U.S. efforts to rein in drug spending encourage wider adoption of biosimilars, which offer comparable benefits to original biologic medicines at lower prices.

Celltrion rose 7.5 percent from the previous session, while Hanmi Pharmaceutical gained 9.8 percent and Samsung Epis Holdings surged 14.33 percent.

Biotech shares also outperformed on the secondary Kosdaq bourse, with LigaChem Biosciences rising 7.41 percent and Alteogen gaining 3.68 percent.

“Concerns over potential delays in new data center projects could widen the gap between AI-related stocks, such as semiconductors and power equipment, and non-AI sectors like secondary batteries and solar,” said Han Ji-young, an analyst at Kiwoom Securities.

Still, she expects the impact on chipmakers to be limited, as data center projects already underway are unlikely to face major delays, leaving existing supply contracts and earnings forecasts for AI infrastructure companies largely intact. She added that nationwide restrictions would be difficult to implement, given the president’s veto power, differing views within the Democratic Party and Washington’s determination to maintain its lead in AI.

In the Seoul foreign exchange market, the won weakened 0.6 won against the U.S. dollar to close at 1,342.1 won.