'Black Wednesday' KOSPI plunges 6% breaking below 3,900… sidecar activated [Comprehensive]

Stock market hit by 'AI bubble theory'

Foreigners unload 1.31 trillion won in 'selling bomb'

Sell-sidecar activated for KOSPI and KOSDAQ

Won·dollar exchange rate at highest in 7 months

"Burden from short-term surge… likely to be a temporary correction"

The KOSPI index was hit by controversy over US-origin artificial intelligence (AI) overvaluation and collapsed below the 3,900 level during trading on the 5th. As the KOSPI and KOSDAQ markets plunged around 6%, the Korea Exchange activated sell-sidecars for the first time in 7 months and 15 months, respectively.

As of 11:00 a.m. that day, the KOSPI index was at 3,920.09, down 4.89% from the previous day. The KOSPI opened down 1.61%, and panic selling in the early session widened losses, breaking both the 4,000 and 3,900 levels. Around 10:33 a.m., the KOSPI fell as much as 6.16% to 3,867.81.

The KOSDAQ index was also at 885.3, down 4.45%, surrendering the 900 level.

As the indices plunged, the Korea Exchange activated a sell-sidecar for the KOSPI at 9:36 a.m., followed by a sell-sidecar for the KOSDAQ at 10:26 a.m. It was the first activation of sell-sidecars for the KOSPI and KOSDAQ markets in 7 months and 15 months, respectively.

A sell-sidecar is a mechanism to prevent rapid swings in the futures market from affecting the cash market; it is triggered if KOSPI200 futures or KOSDAQ150 futures fall 5% from the previous day's closing price for one minute.

The market plunge is attributed to a sharp deterioration in investor sentiment following the emergence of an AI bubble narrative in the United States. Earlier that day, AI-based enterprise software company Palantir posted results that beat Wall Street expectations and raised its outlook, yet its stock plunged 7.94%.

Palantir's stock has risen more than 150% so far this year, and investors, feeling the burden at current price levels, appear to have taken profits. Palantir's plunge cooled investor sentiment toward other AI-related stocks.

AI chip leader NVIDIA fell 3.96% that day, and AI chipmaker AMD (-3.70%) also showed weakness. Tesla plunged 5.15%, and other large AI-related tech stocks such as Alphabet (-2.16%), Broadcom (-2.81%), Amazon (-1.83%), Meta (-1.59%), and Oracle (-3.75%) were also weak.

At this time on the securities market, foreign investors were net sellers of 1.31 trillion won. They sold 340 billion won in the KOSPI200 futures market. Meanwhile, individual and institutional investors were net buyers of 941.8 billion won and 465.7 billion won, respectively.

Samsung Electronics and SK Hynix widened intraday losses to the 7% and 9% ranges, respectively, relinquishing their '100,000-won Samsung' and '600,000-won Hynix' positions. However, at this time their losses had narrowed somewhat to the 5% range.

The won·dollar exchange rate surged during trading, breaking back above the 1,440 won level. In Seoul's foreign exchange market, the won·dollar exchange rate opened at 1,443.5 won, up 5.6 won from the previous close, and widened intraday to 1,446.4 won, recording its highest level in 7 months.

Securities firms largely attributed the market plunge to the burden from a short-term surge. Ji-young Kim, head of the Research Center at Kyobo Securities, said, "The emergence of AI overheating concerns in the United States appears to be acting as a burden," and added, "Recent short-term rapid gains make investor sentiment respond sensitively to news."

Dong-won Kim, head of the Research Center at KB Securities, said, "With the KOSPI up 70% since the beginning of the year, this is likely to be a temporary correction due to short-term gains," and added, "The AI bubble controversy is also likely to be an overreaction."

No Jeong-dong, Hankyung.com reporter dong2@hankyung.com