Kospi rebounds after chip rout erases $1 trillion

A global selloff in semiconductor shares erased more than $1 trillion in market value from the largest chip and memory companies this week. Hotter US inflation, bets on more Federal Reserve rate hikes and worries about the debt funding the AI buildout all weighed on the sector, Business Insider reported. The Philadelphia Semiconductor Index PHLX Semiconductor Index ↘ 3.84% is down 12% from its early-October peak. On Thursday, October 15, it fell 0.9%, its seventh straight decline, according to Reuters. The iShares Semiconductor ETF ↘ 4.14% has fallen for eight consecutive sessions.businessinsider.com+2

Seoul takes the hardest hit

The selling started in South Korea. SK Hynix ↘ 6.58% and Samsung Electronics make up more than half of the Kospi's market value, and both began sliding Tuesday after a Chinese memory maker reported progress on a denser chip architecture, according to Business Insider. The Kospi plunged 7.6% on Thursday, setting off a circuit breaker that briefly halted trading. SK Hynix fell 11% and Samsung 9.5% that day, Morningstar reported. The index recovered more than 3% on Friday, winning back less than half of Thursday's 7.57% drop.morningstar.com.au+2

The selloff also hit Europe and the US. ASML ↘ 0.96% and STMicroelectronics ↘ 2.60% each lost about 7% on Thursday. Nvidia ↘ 1.43%, Micron ↘ 5.63% and Advanced Micro Devices ↘ 5.95% fell in early trading, even though TSMC Taiwan Semiconductor Manufacturing Company Limited ↘ 2.28% reported 41% revenue growth.morningstar.com.au

Inflation and CoreWeave's debt

September consumer prices rose 3.7% from a year earlier, slightly above the 3.6% forecast. Markets now see a 92% chance of at least one more Fed hike this year, per Business Insider. "Tech investors are getting uncomfortable with the amount of debt being used to fund the AI build-out," AJ Bell's Dan Coatsworth told Morningstar.businessinsider.com+1

CoreWeave ↘ 11.91% became the center of those concerns. Its shares dropped 15.5% on Wednesday, and its debt due in 2032 traded below 78 cents on the dollar, down from par four months earlier. On Thursday its credit default swaps reached a record, implying about 60% odds of default within five years. The stock still rebounded about 6% that day after Nvidia CEO Jensen Huang voiced optimism about the company.finance.yahoo.com+2

Dip buyers return

By Thursday's close, the S&P 500 had edged up 0.3%, and the chip index had cut an intraday loss of 4.4% to under 1%, Bloomberg reported. Investors moved into Treasurys, and the 10-year yield fell 13 basis points to 5.06%.swissinfo.ch+1

Some strategists see a possible bottom. JPMorgan analysts wrote that "Semis can climb this latest wall of worry," citing results from Hynix and Samsung. Others are less sure. Morningstar's Javier Correonero said neoclouds "are high uncertainty, unproven businesses that are deploying billions in capex and need constant access to financing" in comments to Morningstar.businessinsider.com+1