Kospi rebounds — but can the recovery hold?

After seven consecutive sessions of steep losses that triggered circuit breakers, the Kospi staged a rebound Friday, raising hopes that the recovery could extend into next week. Whether concerns over the profitability of AI investment ease ahead of earnings reports from major US technology companies will be a key factor. The Bank of Korea's Monetary Policy Board decision on the benchmark interest rate, due Thursday, and whether foreign selling subsides will also be closely watched.

According to Korea Exchange, the Kospi closed at 5,668.05 on Friday, up 113.83 points, or 2.05 percent, from the previous session. The Kosdaq finished at 794.78, gaining 33.96 points, or 4.46 percent. For the week of Oct. 12–16, the Kospi fell 14.46 percent and the Kosdaq dropped 10.93 percent.

Domestic markets tumbled this week as doubts about the profitability of AI investment, inflationary pressure in the United States and heavy foreign selling converged. The Kospi declined for seven straight sessions, accumulating losses of more than 20 percent, and circuit breakers were triggered on both the Kospi and Kosdaq markets on Thursday. On Friday, bargain buying concentrated in large-cap semiconductor stocks — led by Samsung Electronics and SK hynix — drove the rebound.

"What matters more than the severity of the drop itself is the nature of the shock and whether it can be resolved — that will determine the direction of share prices going forward," said Kang Jin-hyeok, a researcher at Shinhan Securities. "In 2008 and 2020, recoveries came relatively quickly, whereas in 2000 the rebound was delayed for a prolonged period and in 2011 it also took considerable time before an initial recovery emerged." The current Kospi environment — where corporate earnings forecasts remain intact but price-to-earnings ratios have fallen sharply — draws comparisons to the dot-com bust of 2000. Analysts say the key question for a sustained recovery is whether AI investment concerns translate into actual earnings deterioration at chipmakers.

Foreign investor flows will also determine whether the rebound can be sustained. According to Daishin Securities, foreigners net sold 31.7 trillion won ($23.5 billion) on the Kospi market in August and September, yet the Kospi actually rose 3.7 percent over that period as share buybacks by Samsung Electronics and SK hynix absorbed the selling pressure. So far this month, buyback activity has slowed while foreign selling has continued, widening the index's decline.

With concerns about AI investment profitability running high, attention is turning to upcoming earnings from major US technology companies. Meta, Lam Research, IBM and Texas Instruments are scheduled to report on Wednesday (local time), followed by Western Digital on Thursday. "The question is whether earnings from Meta, Lam Research, IBM and others will provide an opportunity to ease doubts about the sustainability of AI investment and the outlook for the semiconductor industry," said Lee Kyung-min, a researcher at Daishin Securities.

The Bank of Korea's Monetary Policy Board meeting is also scheduled for Thursday. Market consensus compiled by Bloomberg expects the central bank to hold the benchmark interest rate at 3.00 percent. However, with inflationary pressure persisting, market attention is focused on the timing of any additional rate increases.

China's third-quarter GDP figures are due Monday, and South Korea's export data for Oct. 1–20 will be released Wednesday. After monthly exports surpassed $120 billion for the first time in history in September, the key question is whether the export momentum — driven by semiconductors — continues. Daol Investment & Securities said that if the data confirms exports have moved to a structurally higher level, expectations for corporate earnings will also strengthen.

NH Investment & Securities set its projected Kospi range at 5,100–6,100 for the coming week. It cited bargain buying and expectations for improved third-quarter earnings as upside factors, while flagging unexpected negative developments and geopolitical uncertainty as downside risks.

"Rather than interpreting the current situation as a crisis for the AI industry as a whole, investors should focus on identifying companies capable of weathering delayed profit generation in a high-interest-rate environment," said Lee Sang-jun, a researcher at NH Investment & Securities. "A strategy of increasing exposure to semiconductors — which were at the center of this sell-off — is warranted." He added that if the CoreWeave situation is confirmed to be a company-specific issue rather than a broader AI industry problem, semiconductors will lead a sharp rebound.