Kospi Index Sees Unprecedented Surge Amid AI Stock Rebound

South Korea’s Kospi index experienced a remarkable increase of nearly 18% on Friday. This climb aligns with Wall Street’s recovery, particularly driven by the rebound in artificial intelligence-related stocks. Earlier this week, these stocks suffered losses.

U.S. futures gained 0.5%, while oil prices decreased by more than 1%. The Kospi began the day with a surge, fluctuated, and ultimately closed at 6,695.45. This marks the largest single-day gain in the index’s history. Notably, Samsung Electronics’ shares increased by 28%, and memory chipmaker SK Hynix saw a rise of 30%.

Even with Friday’s gain, the Kospi remains significantly below its June peak of over 9,000. The index had lost over 17% in the past three days, partly due to investor concerns about a potential AI bubble and growing competition from Chinese chipmaking and AI companies. The previous record for a single day gain was nearly 12% in October 2008 during the global financial crisis.

The recent upturn followed Microsoft’s Thursday report of better-than-expected quarterly profits, indicating large investments in AI have begun yielding returns. Microsoft’s stock soared 15.5%, marking its best day in almost 18 years. This prompted traders to invest again in tech companies, despite previous doubts over returns on substantial investments.

European markets also saw gains on Friday. Germany’s DAX rose 1% to 25,870.09, Paris’ CAC 40 increased 1% to 8,570.48, and Britain’s FTSE climbed 0.8% to 10,983.31.

In Asia, Tokyo’s Nikkei 225 witnessed a 4% increase to 64,362.02. SoftBank Group, an investor in OpenAI, jumped 13.8%, while Tokyo Electron, a chip equipment maker, grew 6.2%. In a note, Stephen Innes from SPI Asset Management described the trading behavior as a shift from discarding AI stocks to actively acquiring them.

The U.S. dollar recovered following a sharp decline against the yen, gaining back 0.5% to 160.28 yen. It’s believed that regulators in Japan and the U.S. intervened after prolonged trades above 160 yen, approaching 40-year highs. Japan’s Nikkei newspaper reported this intervention involved a coordinated effort, with the Federal Reserve Bank of New York conducting a “rate check” for currency exchange quotes.

Both Japan and the U.S. central banks maintained their interest rates unchanged in their recent meetings. The persistent gap in interest rates between the two countries contributes to the yen’s weakness. Jonas Golterman of Capital Economics anticipates the yen will linger around the 160 level before potentially rebounding in the next year.

In currency markets, the euro declined to $1.1509 from $1.1524. Taiwan’s Taiex index leaped 8%, spurred by a 10% rise in TSMC’s shares. Australia’s S&P/ASX 200 slightly increased by 0.1% to 8,976.80. Hong Kong’s Hang Seng marginally climbed 0.1% to 25,884.83, while the Shanghai Composite gained 0.7% to 3,832.26.

An official survey indicated a slowdown in China’s factory activity in July, marking the month’s first contraction in five months.

According to analysts, weakening domestic demand and recent typhoons contributed to the slowdown. The Chinese economy grew at its slowest in over three years with annual growth of 4.3% during the April-June quarter.

Pertaining to oil, prices fell as U.S.-Iran tensions restricted passage through the Strait of Hormuz, a vital route for oil transportation. Brent crude dropped 1.4% to $85.70 per barrel. Before the Iran conflict began in late February, it was around $72 per barrel. Benchmark U.S. crude decreased 1.6% to $82.23 per barrel. ING commodities analysts highlighted slight increases in oil flows through the Strait of Hormuz, potentially alleviating supply pressure.

On Thursday, Wall Street’s S&P 500 rose 1.7%, the Dow Jones Industrial Average gained 1.2%, and the tech-centric Nasdaq composite surged 2.8%.

Additional reporting by Chan from Hong Kong.