Seoul, Nov 6 — South Korea's benchmark Korea Composite Stock Price Index (KOSPI) sank below 5,000 points on Friday, hit by fears that a Democratic Party victory in the U.S. midterm elections could slow the pace of data centre construction for artificial intelligence (AI).
Taking a cue from a tech sell-off on Wall Street overnight, the KOSPI plummeted more than 8 percent, prompting trading on the market to be halted for 20 minutes, reports Yonhap news agency.
It was the first time in 16 trading sessions that the KOSPI's 20-minute trading halt was activated.
Shares of Samsung Electronics and SK hynix, which account for nearly half of the KOSPI market, plunged more than 10 percent in morning trading.
With Democrats winning majorities in both the U.S. Senate and House of Representatives, analysts have predicted that the power of U.S. President Donald Trump will be weakened during the final two years of his term.
One of the key things to watch going forward is whether a Democrat-controlled Congress slows the pace of building data centers for artificial intelligence.
As the Democratic Party won the gubernatorial leadership in Texas, a key U.S. state in pushing for AI data centres, the tech-heavy NASDAQ slumped more than 5 percent overnight.
Some analysts expected volatility to remain elevated in the local stock market.
Han Ji-young, an analyst at Kiwoom Securities, said that volatility in the local stock market is likely to continue after the sharp decline.
The fear gauge of South Korea's stock market has also jumped as Wall Street's tech sell-off hurt global markets.
The KOSPI 200 volatility index (VKOSPI) rose to a three-month high of 64.74 on Friday, according to the Korea Exchange.
In a research note, Daishin Securities said the market's reaction to the AI-driven rout was excessive.
Lee Kyung-min, an analyst at Daishin Securities, said that the Democratic Party's win may have prompted delays in the construction of AI data centers, but the likelihood of full-scale suspension of such build-out was low.
Finance Minister Lee Hyoung-il has vowed to take steps to cope with the excessive volatility in the local stock market.
Lee told a meeting with relevant ministers earlier in the day that the government "will preemptively set up measures and take them to prevent our stock markets from excessively responding" to the U.S. tech sell-off.
The finance minister said that South Korea will closely monitor external uncertainties but noted that the nation's economic fundamentals remain solid.