Asia Markets Tumble as AI Spending Doubts Hammer South Korean Stocks

Asian stocks fell broadly on Tuesday as investors once again refused to rebuild their bets on the region’s artificial-intelligence trades, dragging South Korea’s Kospi down nearly four per cent even as Wall Street’s chip names had staged a rebound overnight.

The benchmark Kospi closed 215.27 points, or 3.73 per cent, lower at 5,552.74, according to the Korea JoongAng Daily, after dipping as low as 5,493.24 during the session. It was the index’s lowest close in more than six months, a Reuters market round-up confirmed, erasing a two-day rebound that had briefly suggested the selling of the past fortnight was exhausted.

The weakness was concentrated in the memory-chip giants that have become synonymous with the AI trade in Seoul. Samsung Electronics fell about three per cent and SK hynix about four per cent, with SK hynix at one point dropping more than seven per cent to below 120,000 won before paring losses. The two companies account for nearly half of the Kospi’s total market capitalisation, so their slide dictated the market’s direction, the Korea JoongAng Daily noted.

Foreign investors sold a net 535.4 billion won of Korean shares and institutions offloaded roughly one trillion won, while individual investors bought a net 900 billion won in a show of retail support that could not hold the line back. Decliners outnumbered advancers 771 to 117, in a session that analysts described as indiscriminate.

The selling was not confined to Seoul. Japan’s Nikkei 225 dropped about one per cent to close near 64,075, weighed down by technology names including SoftBank Group, chip-equipment maker Tokyo Electron and Renesas Electronics. Hong Kong’s Hang Seng fell 1.1 per cent to 23,927.47, while the Shanghai Composite slipped 0.1 per cent to 3,726.38 after the People’s Bank of China left its lending rates unchanged. Australia’s S&P/ASX 200 lost 0.3 per cent. The MSCI Asia ex-Japan index fell 1.14 per cent, Reuters reported.

Oil added to the pressure. Brent crude traded near $110 a barrel, gaining about 0.7 per cent to $110.32, while US crude rose 0.36 per cent to $104.03, as markets weighed renewed attacks by an Iran-backed group on Saudi energy infrastructure and an executive order from US President Donald Trump waiving some sanctions and tariffs related to Russian energy exports. The euro recouped some losses from the previous session that had been spurred by escalating riots in France, with the single currency up 0.17 per cent at $1.1229, while the Japanese yen strengthened to 158.24 per dollar.

A bounce that failed to travel

The Asian session followed a mixed but calmer close on Wall Street. The S&P 500 rose 0.4 per cent on Monday, or 31.29 points to 7,690.73, recovering some of the previous week’s losses, the Associated Press reported. The Nasdaq composite rallied 1.1 per cent to 26,430.89, and the Philadelphia Semiconductor Index rose about 1.6 per cent, snapping an eight-session losing streak. The Dow Jones Industrial Average, however, dipped 36.38 points to 51,966.03, highlighting the uneven nature of the rebound.

Nvidia added 1.4 per cent on Monday and was one of the strongest forces lifting the S&P 500, AP noted. SpaceX, which controls the xAI business, rose 1.3 per cent, and its founder Elon Musk pledged to give one share of SpaceX to “every kid in America” next year. But the majority of US stocks outside of AI and technology fell on Monday, and that narrowness set the tone for Asia: bargain-hunting in a handful of US chip names did not restore confidence in Asian technology valuations.

As Chris Weston, head of research at Pepperstone, put it in a note quoted by Reuters: “The market is happy to cover shorts and unwind defensive trades, but that’s very different from having the conviction to rebuild aggressive exposure to AI.”

From financing fears to pricing-power doubts

The October sell-off has moved through two distinct phases, analysts say. The first was about how the AI buildout gets financed: much of the spending on AI chips and data centres has been funded with borrowed money, and the yield on the US 10-year Treasury climbed to 5.14 per cent on Monday from 5.09 per cent late Friday — the highest levels in years, according to AP. A credit scare at US AI cloud provider CoreWeave and the collapse of a planned $5 billion initial public offering by a data-centre firm in Australia raised fresh questions about whether the infrastructure boom can keep being financed.

The second phase, visible in Tuesday’s trade, is about pricing power along the AI value chain. Reports that large US technology customers, including Apple and Tesla, are pushing for lower memory prices — and pointing to Chinese suppliers CXMT and YMTC as alternatives — rattled Korean chipmakers specifically. The cold reception for South Korean AI data-centre firm Elice added to the mood: it opened as much as 16 per cent below its IPO price and closed down nearly 34 per cent from its 90,500-won offering price, a weak debut for a deal that had been heavily oversubscribed.

“Concerns over credit risks and profitability surrounding AI investment have yet to be fully resolved, limiting the sustainability of the rebound,” Lee Kyoung-min, an analyst at Daishin Securities, told the Korea JoongAng Daily. “Profit-taking emerged following the previous session’s gains, sending the market back into negative territory.”

The Korean market has been among the hardest hit of any major benchmark this month. Entering October, the Kospi wiped out about 1.05 quadrillion won — roughly $792 billion — in market value, or 19 per cent, marking the steepest drop among major Asian indexes as of Tuesday’s close, the Korea JoongAng Daily reported. The index had already plunged about 21 per cent over seven trading sessions from October 6 through last Thursday, including a brutal October 15 session in which circuit breakers halted trading on both the Kospi and Kosdaq for 20 minutes after losses exceeded eight per cent — the first simultaneous halt since July 29. By comparison, the Nasdaq has declined only 1.6 per cent and Taiwan’s Taiex 3.44 per cent over the same stretch.

Oil, rates and a crowded earnings calendar

Beyond AI, investors are contending with a familiar stack of macro pressures. Elevated oil prices have raised concerns about inflation and business costs, particularly in Asian economies heavily dependent on imported oil and gas, according to market reports. The US Federal Reserve is widely expected to hold rates at its October 27–28 meeting, with markets now assigning a high probability to a December rate hike, adding to the funding-cost anxiety around the AI buildout.

Political instability in France dampened risk appetite across global markets, with French sovereign bonds underperforming and the euro near multi-month lows against the dollar before Tuesday’s partial recovery. Euro Stoxx 50 futures were down 0.57 per cent, German DAX futures dipped 0.33 per cent and FTSE futures lost 0.47 per cent ahead of the European open, while S&P 500 e-minis rose 0.12 per cent to 7,743.5.

The spotlight now turns to corporate earnings. Quarterly results are due from Netflix on Tuesday and from Meta and Tesla on Wednesday, with IBM also reporting this week. Investors will be seeking fresh evidence that consumers and the broader economy remain resilient — and, more specifically, that the technology giants can justify the enormous capital expenditure plans underpinning the AI trade. Goldman Sachs expects the five big AI spenders to lift combined capital expenditure to about $1.2 trillion next year, a forecast that shows money is still flowing into AI even as markets argue over where it lands.

Analysis: Why It Matters

The AI trade is being repriced, not abandoned

October’s violence in Asian markets should not be mistaken for a verdict that the AI buildout is over. Capital spending forecasts from the likes of Goldman Sachs show the money is still being committed — $1.2 trillion from the five big spenders next year alone. What is changing is the market’s answer to a narrower question: who gets to keep the margin along the chain. A month ago, memory makers like Samsung and SK hynix were valued as if every gigabyte of AI demand would flow to them at ever-rising prices. Now investors are asking whether the biggest buyers, facing their own shareholders’ scrutiny, will squeeze suppliers — and whether Chinese capacity gives them the leverage to do it. That is a much more ordinary kind of equity repricing than the apocalyptic framing of recent sessions suggests.

Seoul’s concentration risk is the real story

The Kospi’s status as this month’s worst-performing major index is not an accident of geography; it is a consequence of concentration. When two companies account for nearly half of a benchmark’s market capitalisation, the index ceases to be a national barometer and becomes a single-sector wager. Korea enjoyed the upside of that structure in the first half of the year — the Kospi had risen nearly 116 per cent at its record closing high in June — and it is paying for it now. Taiwan, whose market is similarly chip-heavy, has fallen only 3.44 per cent in the same window, which suggests the Korean sell-off also reflects forced selling by retail investors who bought the boom on borrowed money. More than 11 million crypto and stock trading accounts in the country, and one trillion won of retail buying on Tuesday alone, paint a picture of a domestic investor base still convinced this is a dip to buy. Whether that conviction survives further margin pressure is the open question.

Short-covering is not a recovery

Chris Weston’s distinction — between covering shorts and rebuilding conviction — is the sentence that explains Tuesday. Monday’s US rally was led by a handful of AI names, with the Dow finishing lower and most stocks falling. That is the market’s least trustworthy kind of bounce: a mechanical unwinding of bearish bets, not a considered re-entry. For Asian investors, who face the full weight of $110 oil, a 5.14 per cent 10-year Treasury yield, and an earnings week that could easily disappoint, short-covering in New York is no reason to catch a falling knife in Seoul. Until corporate results demonstrate that AI spending is generating returns rather than just absorbing capital, the burden of proof sits with the bulls.

Oil and France show how thin the buffer is

It is striking how quickly the narrative stack has grown beyond AI. Three weeks ago, the market’s central worry was whether data centres could be financed; now the same investor must also weigh $110 crude, unrest in France’s sovereign-bond market, and the fiscal implications of whatever emerges from Paris. None of these is a catastrophe on its own, but together they shrink the market’s tolerance for earnings misses. The AI boom has always been a story about future profits; when the present is full of present-tense shocks, the future gets discounted more heavily. That is the mechanism turning an AI wobble into a broad Asian sell-off.

What to Watch Next

1. Tuesday and Wednesday’s earnings: Netflix reports Tuesday, followed by Meta and Tesla on Wednesday and IBM this week. The critical numbers are not revenue but guidance on AI capital expenditure and any commentary on memory and component pricing — the exact battleground where Seoul’s losses began.
2. US Treasury yields and the Fed: With the 10-year at 5.14 per cent and a December hike heavily priced in, any surprise from the Fed’s October 27–28 meeting — or in the inflation data feeding it — will hit the AI financing story directly.
3. Oil and the Middle East: Brent near $110 on the back of attacks on Saudi energy infrastructure and the evolving sanctions picture around Russian exports. Sustained $110-plus oil would tighten global financial conditions without any central bank lifting a finger.
4. France’s sovereign stress: The OAT-Bund spread has widened sharply and European equities are pricing French sovereign risk. If that metastasises into a broader European problem, Asia’s export-dependent markets take a second hit through demand, not just sentiment.
5. Retail positioning in Korea: Tuesday’s one trillion won of individual buying absorbed foreign and institutional selling, but prices still fell. Watch whether domestic buyers keep stepping in — and whether forced selling from leveraged accounts turns an orderly repricing into something sharper.

Sources

• Reuters: “Asian stocks retreat broadly on Tuesday while oil prices rise as geopolitical risks rattle sentiment” (reported by Rocky Swift, Tokyo, Oct 20)
• Associated Press: “Asian shares mostly decline after AI stocks lead a rebound on Wall Street” (Oct 20)
• Korea JoongAng Daily: “Kospi slides nearly 4% on AI jitters, unrest in France” (Oct 20)
• Korea JoongAng Daily: “From boon to burden: AI spending woes leave Kospi among worst-performing major indexes” (analysis, Oct 20)