Fifth circuit breaker of the year triggered twice in one week

Micron's earnings surprise lifts hopes for semiconductor sector

Analysts say second-quarter results will determine market direction

Share prices of SK hynix, Samsung Electronics and other companies are displayed on the dealing-room board at Hana Bank in Jung-gu, Seoul, on Friday. The Kospi closed down 519.09 points, or 5.81 percent, at 8,411.21, while the Kosdaq fell 36.44 points, or 4.10 percent, to 851.37. [Yonhap]
Share prices of SK hynix, Samsung Electronics and other companies are displayed on the dealing-room board at Hana Bank in Jung-gu, Seoul, on Friday. The Kospi closed down 519.09 points, or 5.81 percent, at 8,411.21, while the Kosdaq fell 36.44 points, or 4.10 percent, to 851.37. [Yonhap]

South Korean stocks endured two circuit-breaker halts this week, exposing extreme volatility in the market. The sharp short-term selloff has badly dented investor confidence, but attention is now shifting to the second-quarter pre-earnings season set to kick off next week. With major companies' earnings previews due in quick succession, second-quarter results are widely seen as the single biggest variable that will determine where the market heads next.

The Kospi closed Friday down 519.09 points, or 5.81 percent, at 8,411.21, according to Korea Exchange. Over the week of June 22–26, the Kospi fell 7.63 percent and the Kosdaq dropped 12.16 percent. Circuit breakers were triggered on both June 23 and June 26 as volatility remained extreme. Analysts attributed the selloff to a combination of concerns over additional US Federal Reserve rate hikes this year, profit-taking in semiconductor shares and sustained foreign selling.

In the Kospi market, foreign investors and institutions net sold 21.37 trillion won ($13.8 billion) and 4 trillion won worth of shares, respectively, over the week, concentrating their profit-taking in semiconductor stocks. Retail investors absorbed the selling pressure, posting net purchases of 24.52 trillion won.

Financial industry analysts view the correction as a short-term unwinding of overheating driven by sentiment and supply-demand swings, rather than any deterioration in corporate fundamentals. "Tuesday's plunge was the result of multiple factors simultaneously hitting investor sentiment — worries about rate hikes, the failure to be added to the MSCI Developed Markets watchlist, the delay in approval of SK hynix's ADR, and pension fund rebalancing," said Lee Gyeong-min, a researcher at Daishin Securities. "Nothing has changed on the earnings, economic or policy front — if anything, corporate profit forecasts are being revised upward."

Micron's earnings surprise helped ease concerns about the semiconductor sector. The market has taken the results as a sign that worries over the memory chip industry are fading. Micron posted sales of $41.46 billion for the latest quarter, well above the consensus estimate of $35.84 billion. Adjusted earnings per share came in at $25.11, also beating the market forecast of $20.78. For its fourth-quarter guidance, the company projected sales of $50 billion and EPS of $31, both significantly above market expectations.

"Micron's strong results are broadening expectations for second-quarter earnings," said Na Jeong-hwan, a researcher at NH Investment Securities. "Since the earnings improvement is concentrated in semiconductors, a strategy centered on market leaders such as Samsung Electronics and SK hynix remains valid for now."

Brokerage analysts are increasingly focused on the second-quarter earnings season. Major companies' earnings previews are set to be released in rapid succession starting next week, with the season officially getting under way when Samsung Electronics reports its preliminary second-quarter results on July 7.

Na set a Kospi forecast range of 8,400 to 9,500 points for next week, saying upward revisions to second-quarter earnings forecasts are the most important upside driver. He added that while uncertainty over the Fed's monetary policy and rate-hike concerns remain a near-term headwind, earnings will ultimately determine the direction of the market.

Several key economic data releases are also scheduled for next week. South Korea's June export figures and the US ISM Manufacturing Index are due July 1, followed by the US June employment report on July 2. Analysts expect South Korea's June exports to remain solid, supported by a higher number of working days and strong semiconductor shipments. US employment is also expected to hold at a robust level, though analysts warn that a reading significantly above expectations could reignite fears of further Fed tightening and amplify market volatility.

"With the Fed having dropped its forward guidance, monetary policy is likely to become increasingly sensitive to economic data going forward," said Yoo Myeong-gan, a researcher at Mirae Asset Securities. "If real-economy indicators such as US employment come in stronger than expected, concerns about additional rate hikes this year could resurface."


hajun825@heraldcorp.com