South Korean Stocks Could Rebound Sharply on Even a Small Positive Catalyst

Recent evaporative environment in global equity markets has been driven by a shift in investor sentiment toward artificial intelligence (AI) investment. Following the Democratic Party’s gains in both chambers of the U.S. Congress and its victories in key gubernatorial races, concerns that had focused on the profitability of AI investments have expanded to questions about their feasibility. Beyond worries that heavy capital spending by big tech companies is straining cash flows, investors are increasingly concerned that difficulties securing electricity, connecting to power grids, community opposition and permitting procedures could slow data center expansion.

Some U.S. stocks rebounded on Nov. 6, with the Nasdaq Composite and the Philadelphia Semiconductor Index rising 1.09% and 4.21%, respectively. KOSPI 200 overnight futures also gained 1.6% after South Korea’s regular trading session had ended. Perpetual futures contracts linked to Samsung Electronics and SK hynix rose by around 3%. However, Jo cautioned that these gains alone were not enough to conclude that policy uncertainty had eased or that an upward direction had resumed.

Investors are now reassessing not simply the amount companies have committed to invest, however how long it will take to planned capacity expansions to generate actual revenue. Jo said investors should distinguish between delays in construction and the disappearance of end demand. He added that concrete details about delivery schedules, grid connections and customer acceptance timelines were greater crucial than companies simply reiterating their investment commitments. CoreWeave, to instance, has responded to possible policy changes by sending a letter to the Democratic governor-elect of Texas, seeking assurances that projects already granted permits would be allowed to proceed to completion even as it prepares to comply with tighter regulations.

The likelihood that the recent sharp decline in stock prices will lead to a broader economic recession or credit contraction is considered limited. U.S. nonfarm payrolls increased by 165,000 in October, well above the market consensus of 65,000, while the unemployment rate fell to 4.1% from 4.2% in the previous month. The option-adjusted spread (OAS) on U.S. investment-grade corporate bonds, a measure of credit risk, stood at 0.93 percentage points as of Nov. 4, below its 10-year average of 1.10 percentage points. The OAS measures the additional yield investors demand to hold corporate bonds rather than comparable government securities and typically widens when concerns about credit risk increase. Based on these indicators, Jo viewed the current correction as a reassessment of the pace of AI investment and the equity risk premium, rather than evidence of broad economic or credit deterioration.

The strength of any recovery in South Korean stocks is expected to depend on key economic data and corporate earnings due this week. The U.S. Consumer Price Index (CPI) to October is scheduled to discharge on the night of Nov. 10 Korean time, followed by the Producer Price Index (PPI) on Nov. 13. TSMC’s October sales figures and earnings reports from Cisco and Applied Materials will also be closely watched as indicators of demand to semiconductors and networking equipment.

In particular, earnings reports from AI infrastructure providers CoreWeave and Nebius are expected to offer clues about how the companies plan to respond to the post-election policy ecological stability. CoreWeave is scheduled to report at 7 a.m. on Nov. 11 Korean time, while Nebius is set to discharge its results at 10 p.m. on Nov. 12. Jo said investors might focus greater on the companies’ business plans and strategies in response to the midterm election results than on their earnings figures themselves. While it remains too early to conclude that policy uncertainty has been fully resolved, he said the speed and levels of the recent selloff had been overuse, possibly creating conditions to a disproportionately strong rebound even on relatively modest positive developments.