South Korea’s Kospi briefly entered a bear market after dropping over 20 per cent over investor fears about the long-term prospects of AI chipmakers.
Although the stock market is still the highest performer globally this year, having grown nearly 70 per cent since January, its Wednesday fall of 20 per cent from its June high means that it has technically entered a bear market.
Both SK Hynix and Samsung, which together account for over half of the entire exchange, fell 5.7 and 6.3 per cent respectively yesterday, following Tuesday’s 10 per cent drop for Samsung.
This is despite the company posting a third straight quarter of record operating profit.
Though both stocks have almost recovered for their fluctuations currently, the market as a whole has still fallen over 5 per cent in the last five days of trading.
The Financial Times reported that analysts have attributed this fall to a lack of clarity over how the two firms, which have been buoyed by their provision of the processors that power AI systems, would enforce long-term agreements with customers over chip contracts.
“At the moment we have not heard officially from the Korean peers how they plan on executing on these long-term contracts,” Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas, told the paper.
Chan Lee of Petra Capital Management told the FT he believed the drop was a necessary correction after a growth that was too sharp and too fast, which echoed the messaging of CLSA equity strategist Jongmin Shim.
The South Korean government has played a role in these companies’ rapid growth and is seeking to further bolster its AI chipmaking capabilities through a $576 billion industrial strategy announced in June.
