Kospi Drops 3.65%, Breaks Below 6,400 on AI Concerns, Earnings Caution

South Korean stocks tumbled on the first trading day after the Hangul Day holiday. Concerns about profitability in the artificial intelligence industry, combined with fears of slowing corporate earnings, pushed the Kospi below the 6,400 level for the first time in two months, while the Kosdaq plunged nearly 5%.

On Oct. 12, the Kospi closed at 6,384.24, down 241.69 points, or 3.65%, from the previous session. It was the first close below 6,400 since Aug. 11. The benchmark index extended its losing streak to four consecutive sessions dating back to Oct. 6.

Investor sentiment was also hit by concerns over AI company profitability that spread through U.S. markets during the holiday. OpenAI said annualized revenue was approaching $50 billion as of late last month. That was short of the roughly $70 billion figure previously cited in the market, fueling caution about the AI industry's ability to generate profits.

Concern ahead of third-quarter earnings reports from South Korean companies also weighed on the market. IBK Investment & Securities projected third-quarter operating profit at 151 Kospi 200 companies with estimates to rise 243% from a year earlier and 6% from the previous quarter. Even so, the brokerage said earnings growth would slow after peaking in the first half.

“The third quarter will be the first quarter in which earnings growth has moved past its peak both from a year earlier and from the previous quarter,” Byun Joon-ho, an analyst at IBK Investment & Securities, said. He added that slower earnings growth could weaken investor sentiment.

Geopolitical tensions in the Middle East added to the pressure. Casualties were reported in Saudi Arabia after a missile attack by Yemen's Houthi rebels, and the possibility of a U.S. response returned to focus after an American was among the dead.

Foreign selling was pronounced. On the main bourse, foreign investors were net sellers of 2.019 trillion won, while institutions sold a net 111 billion won. Retail investors were net buyers of 1.467 trillion won.

Large semiconductor stocks also came under pressure. Samsung Electronics fell 4.39%, while SK Hynix dropped 4.52%. Other major large-cap names also declined, including SK Square, down 6.29%, Samsung Electro-Mechanics, down 3.82%, Hyundai Motor, down 1.39%, and LG Energy Solution, down 0.75%.

The Kosdaq posted an even steeper loss. The index closed at 849.19, down 4.83% from the previous session. Institutions and foreign investors were net sellers of 223 billion won and 27 billion won, respectively, while retail investors were net buyers of 249 billion won.

Among Kosdaq names, EcoPro BM fell 10.25%, LEENO Industrial dropped 11.15%, Simmtech slid 10.36%, and Samchundang Pharm plunged 12.73%. EcoPro lost 8.49%, Rainbow Robotics fell 8.86%, and Jusung Engineering dropped 5.42%.

The won rose against the dollar. At 3:30 p.m. in Seoul, the won-dollar exchange rate stood at 1,335.1 won per dollar, down 7.7 won from the previous session.