[Good Morning Market] KOSPI Expected to Open Lower on AI Bubble Concerns... "Recovery Anticipated After Short-Term Correction"

The Korean stock market, which fell below the 4,000 mark last week, is expected to start lower on November 10. The negative sentiment from the U.S. New York stock market on November 7 (local time), triggered by concerns over overheated investment in artificial intelligence (AI) and a weak consumer sentiment index, is likely to spill over into the domestic market.

On this day, the Dow Jones Industrial Average closed at 46,987.10, up 74.80 points (0.16%) from the previous trading day. The S&P 500 finished at 6,728.80, up 8.48 points (0.13%), while the tech-heavy Nasdaq Index fell 49.46 points (0.21%) to 23,004.54. The Russell 2000 Index, which focuses on small and mid-cap stocks, rose by 0.58%.

In the early session, caution over an AI bubble dominated the market, accelerating the decline in technology stocks. Additionally, the consumer sentiment index fell to 50.3 compared to the previous month, dampening expectations for year-end consumption, which also weighed on the market.

However, the indices that had dropped during the session pared their losses in the afternoon. When Meta Platforms announced a $600 billion investment plan to build personalized AI, some investor sentiment improved, and a series of positive outlooks on AI market growth brought in buying momentum. It also had a positive impact that OpenAI requested the U.S. government to extend semiconductor tax credits to data centers.

Political issues also moved in a more favorable direction. News that Chuck Schumer, Senate Majority Leader for the Democratic Party, made a new budget proposal to the Republican Party to resolve the government shutdown (temporary work stoppage) helped reduce the market's losses. The proposal included a one-year extension of Obamacare (ACA) subsidies and postponement of long-term reform discussions. Although the Republican Party immediately rejected the proposal, the possibility of negotiations was seen as a positive for the market.

By sector, technology and AI-related stocks were weak, while some defensive and industrial stocks rose. Nvidia remained flat (0.04%) amid concerns over export restrictions to China, while Intel climbed 2.39% on news of semiconductor cooperation with Tesla. In contrast, Tesla fell 3.68% as profit-taking followed the approval of CEO Elon Musk's compensation plan. Coca-Cola and Chevron each gained more than 2% and 1%, respectively.

According to the Chicago Mercantile Exchange (CME) FedWatch, the probability of a rate freeze at the Federal Funds futures market for December rose slightly from 30.4% the previous day to 33.4%. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) fell by 0.42 points (2.15%) from the previous trading day to close at 19.08.

The KOSPI, which has recently surged, is likely to enter a consolidation phase due to increased short-term valuation pressure. Lee Kyungmin, a researcher at Daishin Securities, explained, "With the rapid rise in the KOSPI, short-term valuation pressure has increased, and a sector rotation-driven correction is likely to unfold as the market relieves short-term overheating."

Until mid-November, events such as U.S. inflation data and major corporate earnings announcements are expected to continue to dampen risk asset investment sentiment. However, as the market moves toward late November and early December, the potential for corporate earnings improvement and policy momentum to regain attention increases, so a recovery in buying after the correction is anticipated. Choi Bowon, a researcher at Korea Investment & Securities, diagnosed, "Even during a temporary pullback, the structural upward trend will be maintained, so it is advisable to approach corrections as buying opportunities."