The impact of the U.S. midterm elections, which resulted in a "blue wave" with a decisive victory for the Democratic Party, was more significant than anticipated. While forecasts had already suggested that the Democrats' control of both houses of Congress would lead to mixed fortunes across sectors, the repercussions were stronger than expected. In South Korea, the KOSPI index plummeted by over 300 points, reflecting the shockwaves felt in the market.
In the stock market, the performance of various sectors diverged sharply. Concerns over a slowdown in investments in artificial intelligence (AI) data centers and potential cuts to defense budgets led to a steep decline in semiconductor and defense stocks. Conversely, expectations for expanded healthcare coverage and falling international oil prices drove buying interest in the bio and automotive sectors.
Semiconductor and Defense Stocks Suffer Losses
On November 5, the Korea Exchange reported that major domestic semiconductor companies, Samsung Electronics and SK Hynix, fell by 7.57% and 9.46%, respectively. Samsung Electronics briefly dropped below 200,000 won for the first time since April 7. Other semiconductor-related stocks, including SK Square (-10.01%), Samsung Electro-Mechanics (-15.34%), and Hanmi Semiconductor (-9.13%), also experienced significant declines. In the KOSDAQ market, companies like Simtek (-17.97%), EoTechnics (-16.21%), and JUSUNG Engineering (-12.21%) recorded double-digit losses.The decline is interpreted as a reflection of concerns that the Democratic majority in Congress may lead to stricter regulations on AI data center construction in the U.S. South Korea's high market share of memory semiconductor companies, including high-bandwidth memory (HBM) producers, made it particularly sensitive to fears of reduced data center investments.
Defense stocks also saw sharp declines. LIG Defense and Aerospace closed down 14.74% at 358,500 won. Hanwha Systems (-13.62%), Hanwha Aerospace (-7.48%), and Hyundai Rotem (-5.75%) also fell. However, Korea Aerospace Industries, buoyed by recent large contract wins, experienced a relatively smaller drop of 3.31%. Concerns that the Democratic Party may curb the defense budget expansion initiated during the Trump administration weighed heavily on defense stocks. Reports indicate that of the $1.45 trillion budget requested by the U.S. Department of Defense for fiscal year 2027, $350 billion would require separate legislative funding.
Auto, Pharmaceutical, and Biotech Sectors See Gains
In contrast, automotive stocks showed strength. Kia rose by 5.22%, while Hyundai Motor increased by 3.53%. The Democratic control of Congress is expected to strengthen checks on the high tariff policies of the Trump administration and restore support for electric vehicle purchase subsidies and other eco-friendly vehicle initiatives.Financial stocks also saw gains, with KB Financial rising by 3.63%, Woori Financial Group by 5.27%, and Shinhan Financial Group by 2.78%. As funds shifted away from growth stocks like semiconductors, investors moved towards financial stocks, which are perceived to have lower volatility and attractive dividends. Korean Air also rose by 2.53% amid expectations of reduced fuel costs due to falling international oil prices.
Pharmaceutical and biotech stocks also performed well. Celltrion closed up 7.50% at 215,000 won, and Samsung Biologics increased by 1.67%. Other notable gains included Samsung Epirus Holdings (14.33%), SK Biopharm (12.27%), and Hanmi Pharmaceutical (9.80%). In the KOSDAQ market, Celltrion Healthcare (6.61%), Rigakem Bio (7.41%), and Alteogen (3.68%) also saw increases. The anticipated expansion of healthcare coverage policies by the Democratic Party has boosted investor sentiment across the biotech sector.
Hwang Soo-wook, a researcher at Meritz Securities, noted, "The Democratic Party's midterm election victory has clearly improved sentiment regarding policy expectations for the secondary battery sector, but the likelihood of policy changes in the short term remains low. Historically, sector-specific benefits following midterm elections have not been distinctly clear, with economic conditions, raw materials, and technology cycles having a more pronounced impact."
* This article has been translated by AI.
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