South Korea Stocks Hit 3-Month Low Amid AI Sell-Off

South Korea's stock market has reached its lowest level in three months, as investors continue to divest from artificial intelligence-related shares. The Kospi index saw a significant decline of 11.5%, falling to its lowest point since mid-April. This downturn was largely influenced by substantial drops in the share prices of major semiconductor companies.

Chip Stock Declines and Market Fears

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Both SK Hynix and Samsung Electronics, prominent South Korean chip manufacturers, experienced share price reductions exceeding 10%. This sell-off reflects growing investor apprehension regarding the substantial borrowing undertaken by AI companies to finance their data centre expansions. The trend extended to Wall Street, where US chip stocks such as Intel and Advanced Micro Devices also saw declines of more than 4%.

Chinese Competition and Investment Concerns

Analysts suggest that renewed worries about AI investment spending and competition from China have spooked the market. Reports indicating that China has begun mass production of its own deep ultraviolet (DUV) chip-making tools have raised concerns about the competitive standing of global leaders in chip manufacturing and equipment. This development, coupled with reports of potential large-scale data centre projects involving significant funding, has contributed to market jitters.

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Jing Jie Yu, an equity analyst at Morningstar, commented that the market appeared concerned that China's advancements in chip-making equipment could challenge established global players. She described the sell-off as "largely a kneejerk reaction and overdone." Meanwhile, Apple's valuation briefly surpassed $5tn, with some investors seeking safer assets amidst the tech sector volatility.

Market Reactions and Future Outlook

The Nasdaq 100 index also experienced a dip, though it later recovered to trade roughly flat. Danni Hewson, head of financial analysis at AJ Bell, noted that investors are anticipating further warnings from AI companies about their future outlooks, which could further erode confidence in the sector. She added that scrutiny of how substantial investments are being utilised and the returns generated is increasing.