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Morning Edition · Tuesday, October 20, 2026Published at 1:08 AM EDT · New York
South Korea's KOSPI Falls About 5% as Credit Investors Pay More for Protection Against AI Debt
According to the Economic Times, SK Hynix was on track for its lowest close since April, and data-center operator Elice fell as much as 32 percent on its first trading day, after weekly default-swap trading on major US tech companies rose from under $2 billion in July to more than $9 billion in September.
South Korea's Korea Composite Stock Price Index (KOSPI) fell about 5 percent on Tuesday as selling of artificial intelligence (AI) hardware stocks resumed across Asia, the Economic Times reported. SK Hynix, the memory-chip maker most closely tied to AI servers, was on track for its lowest close since April, the Economic Times reported. The paper put SK Hynix's fall from its peak at 35 percent and Samsung Electronics' at 22 percent. Israeli business daily Globes reported earlier in the session that Seoul was down close to 4 percent, with chip shares leading the decline.
The weakest new listing showed how far demand has fallen. Elice, which sells AI cloud services and raised 201.1 billion won ($150 million) in its initial public offering (IPO), dropped as much as 28 percent in its first session, according to the Economic Times. A later report put the low at 32 percent. Elice plans to spend most of the money on portable modular data centers, the asset class that investors are now selling.
Seoul fell even though New York had rebounded. On Monday the Nasdaq Composite rose 1.11 percent to 26,430.89 and the S&P 500 gained 0.41 percent to 7,690.73, according to Zacks. Analysts cited by Trading Economics blamed Tuesday's drop on doubts that AI capital spending will pay off and on high US Treasury yields. The 10-year Treasury yield stood at about 5.135 percent, CNBC data showed. Last week, on October 15, the KOSPI fell 8 percent in a single session.
The bond market is pricing the risk more steadily than the stock market. The Financial Times reports that trading in credit default swaps (CDS), the contracts lenders buy as insurance against a borrower's default, has risen sharply for big tech groups. CDS trading linked to Oracle, SpaceX, Alphabet, Amazon, Meta, Broadcom and Nvidia averaged more than $9 billion a week in September, up from under $2 billion in July, according to a summary of that reporting. Oracle's five-year CDS spread widened to a record 288 basis points on October 15, US News reported. CNBC wrote on Monday that stock investors want to move past the sell-off, but credit investors do not.
From a sound-money point of view, this is the expected stage of the cycle. Data-center projects were planned when credit was cheap. They now have to be financed against a risk-free rate above 5 percent, and lenders are the first to charge for that. Netflix reports on Tuesday, and Meta and Tesla report on Wednesday, Globes noted.
Part of a tracked trend
AI Debt Meets the Credit Market
As AI infrastructure moves from cash-funded to debt-funded growth, credit markets rather than equity markets will set the pace of the buildout, and each rise in long-term yields will expose the most leveraged builders and their chip suppliers first.
What this means
The AI buildout increasingly depends on borrowed money, so the cost of credit sets the pace of chip orders. When CDS protection on hyperscalers and their suppliers costs more, new bonds and private loans cost more too. Projects that only made sense at lower rates get delayed. The first companies to lose revenue are memory makers such as SK Hynix and Samsung, followed by Korean and Taiwanese export earnings and the won. The equity sell-off is already well known. What is new is that credit markets did not follow Monday's Nasdaq rebound, and the borrowers paying the most, such as Oracle, have the least financial cushion. The closest precedent is the 2000 to 2002 telecom fiber buildout. Debt-financed capacity grew faster than revenue, spreads widened before equities bottomed, and equipment suppliers lost most of their orders within about two years. The desk's read is that large platforms will keep their headline capital-spending plans in this month's earnings. Within weeks, though, the most indebted builders will pay higher spreads or scale back projects, and Korean chip stocks will stay under pressure as long as the 10-year Treasury yield stays above 5 percent. Two developments would prove this wrong. Oracle's CDS spread narrowing back toward its summer levels, and new AI-infrastructure IPOs pricing and trading steadily.
What to watch
- Meta's capital-spending guidance on Wednesday. A cut would confirm that the cost of funding is now limiting AI investment, not just stock valuations.
- Oracle's five-year credit default swap spread. It is the clearest market price for the risk that debt-funded data centers will not earn enough to cover their borrowing.
- Foreign investor flows out of Korean equities and the won exchange rate. Continued selling would show that the AI sell-off is turning into a currency problem for an export economy.
Observations to monitor, not financial advice.
Synthesized from: Economic Times · Economic Times · Financial Times Technology · Globes (Hebrew)
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Comments
1Oct 20, 5:08 AM
Weekly default swap trading on major US tech names rose more than fourfold from July to September, which suggests the KOSPI selloff is tracking credit concerns about AI capex funding and not only chip demand.