KOSPI Rebounds 3%, but Fed Rate Hike Fears Could Cap the Recovery

The Korea Composite Stock Price Index (KOSPI) rose as much as 3.31% to 5,738.18 in Friday trading. The KOSPI rebound reclaims only less than half of Thursday’s 7.57% drop.

September US producer prices rose by the most in 4.5 years, stoking speculation that the Federal Reserve will raise rates. That risk could cap a bounce that leaves the index roughly 37% below its June closing peak of 9,114.55.

Is the KOSPI Rebound Just a Rotation Out of AI?

Korea Exchange data shows non-AI heavyweights posting the steepest gains. Defense and aerospace maker Hanwha Aerospace rose 8.25% in morning trading. Samsung C&T, the Samsung group’s construction and trading arm, added 5.79%.

In contrast, the chipmakers that powered Korea’s memory chip boom lagged. Samsung Electronics rose 2.14%, and SK Hynix gained 1.82%.

Meanwhile, Nike and Home Depot led Wall Street’s overnight gains as AI and chip stocks closed lower.

Can a Market at Eight Times Earnings Avoid a Second Leg Down?

The index trades near eight times earnings confirmed through the second quarter. That is comparable to the 2020 pandemic selloff, the 2008 financial crisis, and the 2003 credit card debt crisis.

KB Securities says the selloff overshot on recession and earnings fears. It sees a possible second bottom after July’s low.

That would form a W-shaped recovery, where prices test a low twice before climbing.

However, selling pressure may linger. Retail and foreign investors are exiting, and Samsung Electronics and SK Hynix have completed their share buyback programs.

Hot US inflation data helped drive Thursday’s KOSPI slide. South Korea’s market had lost 18.8% in October through that day, against 3.5% for Japan and 2.0% for Taiwan.

Mirae Asset Securities analyst Kim Sung-geun says big tech’s cash generation will decide how AI spending doubts play out. Credit default swap (CDS) premiums, the cost of insuring against default, are rising for Google, Microsoft, and Meta.

Still, CoreWeave, an AI cloud provider with weaker finances, saw its premium top 1,000 basis points.

Friday’s bounce shows buyers will step in at about eight times earnings. Yet big tech’s cash generation and the Fed’s next move could decide whether it marks a bottom or a pause.