[E-Daily Reporter Shin Ha-yeon ] As the “blue tsunami”—in which the Democratic Party secured control of both the Senate and the House of Representatives in the U.S. midterm elections—became a reality, forecasts regarding the direction of the domestic stock market are sharply divided. While some are optimistic that the KOSPI could surpass the 8,000 mark next year if investment in artificial intelligence (AI) and corporate profits remain strong, others are taking a more cautious view, suggesting that short-term volatility could increase if data center regulations lead to actual investment delays and foreign selling persists for an extended period.
On the 5th, the KOSPI closed at 5,383.80, down 300.00 points (5.28%) from the previous trading day, marking its lowest closing price since April 2 (5,234.05). Foreign investors led the index lower by net selling 3.4248 trillion won worth of stocks on the main market alone that day. The KOSDAQ also closed down 5.11% at 678.41.
◇Optimism Points to KOSPI 8,700… “Short-Term Volatility Persists”
Meritz Securities has presented the most optimistic outlook at present. In its recent annual outlook report, Meritz Securities set a KOSPI target of 8,700 for the end of next year. The firm believes that while investment in AI infrastructure itself will continue, next year may see tangible progress as AI investment translates into actual productivity improvements. Hwang Soo-wook, an analyst at Meritz Securities, stated, “AI investment is likely to continue at a sufficient level,” adding, “While the Korean stock market has a high weighting in AI infrastructure, as we move into the latter half of the economic cycle, undervaluation and cash flow will emerge as key investment factors; therefore, the appeal of a recovery from undervaluation could increase in the first half of next year.”
DaishinSecurities also noted that while short-term volatility may be high, the potential for medium- to long-term gains should not be ruled out. It projected a KOSPI range of 5,200–6,700 for the fourth quarter of this year and 5,200–8,200 for the entire year next year. Lee Kyung-min, an analyst at DaishinSecurities, noted, “Investments in AI and data centers (DCs) are not coming to a halt; rather, they are likely to manifest in the form of increased cost burdens, schedule delays, and location restructuring.” He added, “If the KOSPI falls below 5,600 points (p), investors should begin buying in installments, and if it drops below 5,200 p, there is a need to actively increase their portfolio weighting.”
Looking at past trends following midterm elections, there have been few instances where the immediate post-election shock directly led to a prolonged downtrend. According to Shinhan Investment Securities, following the 14 U.S. midterm elections since 1970, the S&P 500 rose an average of 6.3% over three months and 13.1% over six months, while the KOSPI rose 4.7% and 10.8%, respectively. Kang Jin-hyuk, an analyst at Shinhan Investment Securities, explained, “While the economy, corporate earnings, and interest rate conditions following the election—rather than the election results themselves—have largely driven stock prices, the stock market has generally shown a recovery trend following past midterm elections.”
◇ Will AI Regulations Lead to a Reshuffling of Leading Sectors?… Semiconductors or Green Energy?
Meanwhile, market attention is focused on how strictly the Democratic-controlled Congress will regulate investments in AI and data centers. In fact, as the Democrats made gains even in regions with a high concentration of data centers, concerns that regulations on electricity and water usage as well as new permits and licenses could be tightened were reflected in the market; as a result, SamsungElectronics(005930)and SK hynix(000660)plunged 7.57% and 9.46%, respectively, on the day.
However, a cautious view prevails regarding whether data center regulations will immediately halt the AI investment cycle itself. Han Ji-young, an analyst at KIWOOM Securities, stated, “While volatility in AI stocks will remain high, the probability of a repeat of the chain of sharp declines seen several times since October is low,” adding, “This is because it is unlikely that data center regulations will lead to a structural contraction of the AI investment cycle.”
There is also a view that even if the regulations are implemented, the impact is more likely to be limited to increased costs and schedule delays rather than a halt in investment. Yang Il-woo, an analyst at SamsungSecurities, predicted, “We do not expect the pace of data center construction to be significantly delayed,” adding, “It is highly likely that the regulations will take the form of reducing tax incentives or increasing cost burdens. While this could be a somewhat negative factor for AI infrastructure demand, it is unlikely to be enough to alter the direction of AI-driven growth.” He added, “We maintain our previous recommendation to increase exposure to AI-related growth stocks starting in mid-November.”
In addition, some analysts suggest that the Democratic Party’s control of Congress could actually be favorable for the South Korean semiconductor industry in the medium to long term. Lee Sang-jun, an analyst at NH INVESTMENT & SECURITIES, explained, “Regulations on Chinese advanced technologies are fundamentally a bipartisan policy stance,” adding, “With the Democratic Party’s control of Congress, the initiative to curb Chinese technology has shifted to Congress, which could lead to even stricter regulations.” He continued, “If legislative discussions gain momentum, this could alleviate concerns about China’s technological catch-up while further solidifying South Korea-U.S. cooperation on advanced technologies.”
Conversely, there are also forecasts that this shift in the political landscape could trigger a rotation in leading stocks. Byeon Jun-ho, an analyst at IBK Investment & Securities, stated, “Following the market’s sharp decline and subsequent rebound, investors are likely to favor eco-friendly themes over semiconductors due to expectations surrounding U.S. Democratic Party policies, as well as concerns over data center regulations and the Anthropic IPO.” Another factor cited as increasing the likelihood of a short-term rebound is that the KOSPI recently plummeted to around 1 times its 12-month forward PBR, thereby significantly alleviating valuation pressures.
However, cautionary views persist, suggesting it is too early to expect a sustained rebound based solely on the resolution of election uncertainty. Kang Hyun-seok, an analyst at SANGSANGINVESTMENT&SECURITIES, said, “For a short-term recovery in investor sentiment to translate into a sustained rally in the stock market, we need to see an end to the war in the Middle East, the withdrawal of the tariff executive order, and a clear improvement in U.S.-China tensions.” He cited energy storage systems (ESS) and renewable energy as sectors that would directly benefit from such policies.
