KOSPI Index Rises by 3.31%

The KOSPI index rose by 3.31% on Friday, reaching 5,738.18. The recovery offset less than half of Thursday's 7.57% drop. In September, U.S. producer prices showed the sharpest increase in 4.5 years, raising expectations of a Fed rate hike. Analysts note that this factor may limit the rebound. The index remains about 37% below its June peak when it closed at 9,114.55.

According to Korea Exchange, companies not related to AI saw the most growth: shares of defense and aerospace manufacturer Hanwha Aerospace rose by 8.25% in the morning, and construction and trading holding Samsung C&T by 5.79%. Chip manufacturers grew weaker: Samsung Electronics by 2.14%, SK Hynix by 1.82%. On Wall Street, Nike and Home Depot performed best the previous day, while many AI and chip sector stocks closed lower.

The index is trading at almost eight times the annual earnings of companies. Such a multiple was observed at the bottom of sell-offs during the 2020 pandemic, the 2008 crisis, and the 2003 debt crisis. KB Securities considers the decline excessive amid recession and profit concerns but does not rule out a second bottom after the July low, indicating a W-shaped recovery. Selling pressure may persist: retail and foreign investors are exiting the market, and the buyback programs of Samsung Electronics and SK Hynix have concluded.

Rising inflation in the U.S. was one of the reasons for KOSPI's drop on Thursday. Since the beginning of October, the South Korean market has lost 18.8%, the index in Japan has decreased by 3.5%, and in Taiwan by 2%. Mirae Asset Securities analyst Kim Song-eun believes that the future of AI investments depends on whether IT giants can generate real cash flow. The cost of default insurance (CDS premiums) is noticeably rising for Google, Microsoft, and Meta (recognized as extremist in Russia), while for cloud provider CoreWeave, specializing in AI computations, CDS quotes exceeded 1,000 basis points.