KB Securities Explains Why KOSPI Is Falling Despite Strong Samsung, SK Hynix Earnings

South Korean stocks have experienced a sharp correction despite solid corporate earnings, as investors shift their attention from profit growth to financing costs and geopolitical risks, according to a report from KB Securities.

The brokerage said the recent decline in the KOSPI has been driven less by earnings concerns and more by uncertainty surrounding artificial intelligence (AI) investment funding. While major technology companies such as Samsung Electronics and SK Hynix continue to report resilient earnings, their share prices have dropped significantly from recent highs, dragging the broader South Korean stock market lower.

KB Securities argued that investors are increasingly evaluating AI-related spending based on borrowing costs rather than long-term growth potential. The report noted that a similar market pullback occurred last November before stocks rebounded as expectations for U.S. Federal Reserve interest rate cuts improved. According to the analysts, lower financing costs—not renewed confidence in AI profitability—were the primary catalyst for that recovery.

The brokerage believes a sustained rebound in the KOSPI will require both stable macroeconomic conditions and company-specific developments that restore investor confidence. A decline in interest rates and improved access to capital would likely support AI investments and lift equity valuations.

Rising geopolitical tensions in the Middle East have also weighed on market sentiment by pushing U.S. Treasury yields higher and increasing concerns that global monetary policy could remain tighter for longer. However, KB Securities expects geopolitical risks to gradually ease, citing political pressure on the Trump administration ahead of the upcoming U.S. midterm elections, where elevated oil prices and borrowing costs could negatively affect voters.

The report also highlighted a potential policy catalyst after OpenAI proposed giving the U.S. government a 5% equity stake to help establish an AI-focused sovereign wealth fund. If implemented, analysts believe the initiative could reduce financing risks for AI projects, lower corporate borrowing costs, and improve investor confidence. However, they cautioned that stronger government support could also encourage excessive risk-taking and contribute to asset bubbles over the long term.