South Korean stocks took a sharp hit on Monday, with the benchmark KOSPI falling as much as 3.4%, as investors grew wary that the huge sums being poured into artificial intelligence may not translate into profits as quickly as hoped. The selloff came alongside a notable move in the currency market: the won strengthened to its highest level since October 2024, driven by selling of US dollars.
Why the market is jittery
The drop in Seoul was led by the country's two biggest chipmakers, Samsung Electronics and SK Hynix, which are at the center of the global AI boom. These companies have been spending heavily on advanced memory chips and foundry capacity to meet surging demand from AI data centers. But as they head into earnings season, investors are looking for evidence that this spending is actually boosting margins and cash flow, not just revenue.
"The market is asking a simple question: when does all this AI capex start showing up in the bottom line?" said one Seoul-based analyst. "Right now, valuations are rich, and there's little room for disappointment."
The concern isn't limited to South Korea. Taiwan's market also wobbled, with Taiwan Semiconductor Manufacturing (TSMC) sliding even though analysts expect another record quarter. The problem is that expectations are so high that any slight miss could trigger a sharp selloff.
The won's strength adds another layer
Meanwhile, the won's rally is a double-edged sword. On one hand, it reflects confidence in the Korean economy and a weaker dollar globally. But for export-heavy companies like Samsung and SK Hynix, a stronger won is a headwind: they earn revenue in dollars but report in won, so a stronger won means those dollar sales translate into fewer won, squeezing reported profits unless they can raise prices or cut costs.
The dollar-won exchange rate fell to 1,332.16 per dollar, up nearly 8% this year. OCBC, a Singaporean bank, attributed the move largely to exporters selling dollars. Christopher Wong, a currency strategist at OCBC, flagged the 1,320-1,330 range as a key zone for the pair. If the won breaks below that, markets may treat it as a more lasting shift rather than short-term noise.
What it means for investors
For everyday investors, this is a reminder that currency moves can have a big impact on the earnings of multinational companies. A stronger home currency can reduce the value of overseas sales, which is why analysts often adjust their forecasts when exchange rates shift.
The KOSPI's slide also matters beyond South Korea. South Korea and Taiwan together dominate emerging Asia benchmarks, so when their chip-heavy markets fall, the whole region tends to feel it. That means a drop in Seoul can drag down other Asian markets, as seen in recent sessions.
Investors should watch how Samsung and SK Hynix report their earnings in the coming weeks. If they show that AI spending is starting to pay off in higher margins and cash generation, the selloff could be short-lived. But if the numbers disappoint, the "deliver or disappoint" bar will be high, and the pressure on tech stocks could continue.
The broader backdrop isn't helping either. Elevated borrowing costs make investors less willing to pay up for profits that sit further in the future, which puts extra pressure on expensive tech stocks. That's a global theme, not just a Korean one.
For now, the market is in a wait-and-see mode. The won's strength is a signal of confidence, but it also raises the bar for exporters. As earnings season unfolds, the key question will be whether the AI boom is translating into real profits, or just big spending.
Related: KOSPI's earlier slide on Middle East tensions shows how geopolitical shocks can hit the index. And for a broader view of Asian markets, China's push for patient capital is another factor to watch.
