Nomura silences AI doubters, says Kospi can hit 10,000 mark to double as fundamentals are intact

Just when the South Korean stock market plunged below the 5,000 mark to hit a 9-month low on Friday, Japanese brokerage firm Nomura shushed AI doubters and said that the index can reclaim the 10,000 mark with a near-term target in the range of 7,500 to 8,000.

When compared to the day’s low, a 10,000 target implies an upside of 104%, while the near-term target forecasts an upside of 63% from Friday’s low of 4,911.

Why is Kospi bleeding on Friday?

Kospi’s 9% crash comes on the back of growing concerns that the Democrats' sweeping victory in the US midterm elections could slow the pace of artificial intelligence infrastructure investments.


The pressure on South Korean technology stocks followed Wall Street's worst single-day performance in more than a year on Thursday, as investors rushed to book profits in semiconductor and technology companies that had witnessed sharp gains.

Nvidia shares dropped more than 9%, while Micron plunged as much as 18% in a single session. AMD declined more than 17%, while Microsoft, Google, Amazon and Meta fell by up to 3% overnight.

Concerns over the future direction of AI and data centre policies following the Democrats' sweeping electoral gains weighed on hardware manufacturers and semiconductor suppliers. Wall Street's AI-driven rally faced a major setback as fears of tighter regulation and a slowdown in data centre expansion triggered widespread selling across technology stocks.

According to a Reuters report, Jun Kwang-woo, chairman of the Seoul-based financial think tank Institute for Global Economics, said some correction in the market was warranted, but investors appeared to be overreacting to the election outcome.

Jun said the market could stabilise soon, although concerns in several US states, including Texas, could affect the pace of AI infrastructure development, particularly data centre investments.

The correction marks a sharp reversal for the Kospi, which had nearly tripled in value over the year leading up to its June peak. The rally was driven by expectations of higher earnings at Samsung Electronics and SK Hynix amid soaring memory chip prices. Strong gains in the two companies attracted a wave of retail investors, while leveraged exchange-traded funds linked to the chipmakers also expanded. The rally briefly lifted South Korea to the position of the world's sixth-largest equity market by market capitalisation.

However, the rally began losing momentum over the summer as concerns mounted over the funding of AI infrastructure and the possibility that major technology companies could scale back spending on chips. This raised questions over the sustainability of demand from the chipmakers' Big Tech customers. The Kospi has since fallen around 46% from its record high in June.

AI trade unwinding?

The data-centre slowdown due to the political shift is going to be real, and the earnings estimates behind the valuations that were the cornerstone of bullish arguments are no longer valid, according to Michael O’Rourke at JonesTrading.

“Investors have no idea where those estimates will reset,” he said. “As a result, they are de-risking until clarity returns, which won’t be for some time.”

Michael Burry, who made his name shorting the US housing market, said he sold 25% of his put positions in the $58 billion VanEck Semiconductor ETF amid a deepening rout in US technology stocks. “The SMH put positions, even after the sale, however, have become very large positions,” he wrote.

Where this differs from a regular selloff is that we are not seeing recoveries after significant losses, such as Intel Corp. falling further this week even after plunging almost 30% last Friday, according to Jakub Rochlitz at eToro. There’s also increasing cross-sector correlation and a rise in volatility, meaning that the rout is spreading across the market.

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here