South Korea’s benchmark stock index fell 2.29% after a presidential aide floated the idea of a windfall tax on AI-driven profits, a proposal that erased more than 7% from the market at its intraday low and injected massive policy uncertainty into one of the world’s hottest trades.
The KOSPI closed at 7,643.15 on May 12, recovering from a session low near 7,400 after a clarification from the official. The selloff began just as the index touched 7,999.68, a hair's breadth from the historic 8,000-point mark. The trigger was a Facebook post by Kim Yong-beom, President Lee Jae-myung's chief of policy, questioning how the "structural prosperity" from AI should be shared with the public.
"If the strategic position of the AI infrastructure supply chain creates structural prosperity and leads to historic excess tax revenues, how to use this money is not a multiple-choice question, but a design question that requires serious thought," Kim said in the post, proposing a "citizen's dividend."
The market immediately priced in the risk of a new tax on Samsung Electronics Co. and SK Hynix Inc., whose profits have soared on the back of the AI boom. Samsung’s first-quarter operating profit jumped 755% year-over-year, while SK Hynix’s net profit surged 398%. The two semiconductor giants now account for a record 42.2% of the KOSPI's total market capitalization, nearly double the 22.6% weighting at the start of 2025. This concentration turned the policy proposal into a systemic market event.
The proposal represents the most significant headwind yet to a rally that has seen investment banks scramble to raise their forecasts. JPMorgan Chase & Co. recently lifted its bull-case scenario for the KOSPI to 10,000, citing the "higher for longer" memory upcycle. Goldman Sachs and Citi have issued similarly bullish outlooks, pointing to surging global demand for AI infrastructure.
While Kim later clarified the funds would come from "excess tax revenue" and not a direct new tax on corporations, the ambiguity of the term has created a new, unquantifiable risk. The market is left to wonder if this means a simple reallocation of existing tax receipts or a precursor to a formal "excess profits" tax, similar to mechanisms used in the energy sector.
The market’s anxiety is compounded by President Lee's political track record. As a mayor and provincial governor, Lee successfully implemented basic income programs, including a "youth dividend." His administration has a documented history of turning such proposals into policy, suggesting this "AI dividend" concept is more than just a trial balloon.
The 2.29% drop at the close, after the partial recovery, represents the market's initial attempt to price in this new political risk premium. While the AI-driven bull case remains intact for now, it is fractured. The key question for investors is no longer just about the semiconductor cycle, but about how much of its upside could be clawed back by the government.
This article is for informational purposes only and does not constitute investment advice.
