Kospi Index outlook: Headwinds pile up as the selloff deepens, what next?
The Kospi Composite Index continued its strong sell-off last week as jitters surrounding the artificial intelligence (AI) escalated. It dropped to 5,463 points last week, down by nearly 40% from its highest point this year. Technicals suggest that this sell-off may continue as a death cross pattern nears.
Kospi Index slumps as AI jitters continue
South Korean stocks have lost momentum, with investors dumping popular names like Samsung Electronics and SK Hynix being in a steep sell-off. Samsung Electronics dropped by over 40% from its all-time high. Similarly, SK Hynix fell to 1.24 million won, down by over 57% from the highest point this year. These retreats have led to a wipeout worth billions of dollars.
SK Square, which owns a large stake in SK Hynix, has dropped to 784,000 won, down by 64% from its highest level this year. The retreat has also coincided with the sell-off in US memory companies, including popular names like Micron, SanDisk, and Western Digital.
The decline happened as investors remained concerned about the AI bubble. Data show that the AI Bubble Index has jumped to 76, and this rally may continue. As a result, some analysts believe that the bubble will start to burst soon. This includes popular names like Ray Dalio and Michael Burry.
The fears escalated last week after Gartner warned that many large AI companies will need to announce billions of dollars in impairments by 2030. The report pointed to neoclouds like CoreWeave and Nebius as being the most exposed.
Meanwhile, the AI industry has had some negative news recently. Firmus, an Australian company, pulled its IPO two weeks ago as investors balked at the valuation it was seeking.
In another report, media reports suggests that OpenAI’s revenue was $20 billion lower than initially expected. Anthropic’s third-quarter revenue was also weaker than expected.
Crude oil price surge and South Korean Central Bank decisions
Kospi Index is also falling because of the ongoing crisis in the Middle East that has pushed crude oil priceshigher. Brent and the West Texas Intermediate (WTI) jumped to $110 and $101, respectively. This surge will likely continue as Iran continues shooting ships attempting to cross the Strait of Hormuz.
The next key catalysts for the Kospi Index is the upcoming South Korean Central Bank interest rate decision. Economists expect the bank to leave interest rates unchanged at 3.0% as it observes the current inflation trends.
Kospi Index technical analysis
Kospi Index chart | Source: TradingView
The daily chart shows that the Kospi Index has slumped in the past few months. It has dropped from 9,400 points in June to the current 5,668 points.
The index resumed the downward trend after hitting the key resistance level of 7,209 in August, September, and October. It has now remained below the 50-day and 100-day moving averages, while the Average Directional Index (ADX) has risen.
Therefore, the index will likely remain under pressure in the near term. If this happens, the next level to watch will be at 5,272, its lowest level in July. A move below that level will point to more downside, potentially to 5,000.
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