(LEAD)(News Focus) KOSPI pummeled by AI investment fears, briefly dips below 5,000

(ATTN: UPDATES with closing prices, currency market, analyst's comment, photos; RECASTS headline, first 3 paras)

SEOUL, Nov. 6 (Yonhap) -- South Korea's benchmark Korea Composite Stock Price Index (KOSPI) was rocked by investment fears over artificial intelligence (AI) data centers on Friday, hit by worries that a Democratic Party victory in the U.S. midterm elections may put a brake on the AI spending boom.

Taking a cue from a tech sell-off on Wall Street overnight, the KOSPI plummeted more than 8 percent, briefly dipping below 5,000 points in intraday trading. The index pared some losses but plunged 6.02 percent to close at 5,059.69.

Shares of Samsung Electronics and SK hynix, which account for nearly half of the KOSPI market, sank 6.35 percent and 10.44 percent, respectively.

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 AI data centers.

As the Democratic Party won the gubernatorial leadership in Texas, a key U.S. state in pushing for AI data centers, 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.

Yoon Chang-yong, a senior analyst at Shinhan Financial Investment, said concerns about global AI investment spending were spreading across markets.

"The current correction in the stock market shows that burdens for raising funds for AI investment are spreading into doubts over recovering funds from investments made already," Yoon claimed.

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.

The government, meanwhile, has responded by taking steps to stabilize the stock market's volatility, saying that it will temporarily ease requirements on leveraged investments from next Monday for three months.

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.

Lee also cited forecasts by some experts that global investments in AI may continue.

The South Korean won sharply weakened against the U.S. dollar Friday, with foreign investors remaining net sellers of local stocks.

The won was quoted at 1,356.6 won per dollar at 3:30 p.m., down 14.5 won from the close of the previous stock trading session.
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