A display board at Hana Bank's dealing room in Jung-gu, Seoul, shows the closing figures for the Kospi and Kosdaq on Thursday. The Kospi ended the session down 463.81 points, or 6.37 percent, at 6,820.60, while the Kosdaq fell 37.59 points, or 4.53 percent, to close at 791.84. [Yonhap]
A display board at Hana Bank's dealing room in Jung-gu, Seoul, shows the closing figures for the Kospi and Kosdaq on Thursday. The Kospi ended the session down 463.81 points, or 6.37 percent, at 6,820.60, while the Kosdaq fell 37.59 points, or 4.53 percent, to close at 791.84. [Yonhap]

A string of second-quarter earnings reports from major companies — including US big tech firms and SK Hynix — is due next week. With the Kospi having been pushed down to the 6,800 level this week amid concerns over peak semiconductor valuations and supply-demand instability, market attention is now focused on whether those results can dispel fears of slowing AI investment and provide a catalyst for a market rebound.

According to Korea Exchange, the Kospi closed Thursday down 463.81 points, or 6.37 percent, at 6,820.60. Over the week spanning Monday through Thursday, the Kospi shed 8.77 percent while the Kosdaq fell 5.44 percent.

Domestic markets were rattled this week by concerns that growth in AI capital expenditure and semiconductor profits had peaked. A renewed flare-up in US-Iran tensions, rising long-term US interest rates, and supply-demand anxiety surrounding single-stock leveraged ETFs amplified the selloff. Analysts largely attribute the sharp decline not to any deterioration in corporate fundamentals, but to a contraction in investor sentiment compounded by a supply-demand shock.

"The extreme volatility in the Kospi recently is the result of weakened investor sentiment from the simultaneous decline in Korean and US semiconductor stocks, combined with worsening semiconductor supply-demand conditions and the unwinding of leveraged positions," said Lee Gyeong-min, an analyst at Daishin Securities. He noted that the Kospi's 12-month forward price-to-earnings ratio had fallen to 5.78 times as of Monday — below the 6.27 times recorded at the trough of the 2008 global financial crisis. "This is the first time the Kospi's forward PER has fallen below six times since the 2004 credit card crisis and fears of a domestic demand slump," he added.

Lee said, however, that the Kospi's forward earnings per share had risen to 1,171.1 points from 1,105.1 points at the end of June. "Since there has been no fundamental deterioration during this sharp decline, the correction driven by weakened sentiment and supply-demand volatility should be seen as a buying opportunity to take advantage of improved valuation attractiveness," he said.

Next week, Alphabet and Tesla are scheduled to report their second-quarter results on Wednesday local time. Given that concerns over a slowdown in AI capital expenditure were at the heart of the recent domestic market correction, analysts are closely watching the capex guidance Alphabet will provide.

"The cause of the recent market correction is skepticism over AI capex and debate surrounding the trajectory of memory chip profit growth," said Kang Jin-hyeok, an analyst at Shinhan Investment. "The key variables in Alphabet's results will be the company's capex guidance and its commentary on semiconductor supply shortages and long-term supply agreements." Kang said that if AI capex continuity is confirmed through the big tech earnings season starting with Alphabet, investor sentiment toward domestic semiconductor stocks could improve.

SK Hynix's second-quarter results, due July 24, are also a pivotal variable for the direction of the semiconductor sector and the broader Kospi. Some in the market have raised concerns that, given SK Hynix's heavy exposure to HBM, the increase in its average selling price may fall short of expectations. Analysts, however, say the market should focus less on near-term results and more on HBM pricing and demand, as well as the company's second-half earnings guidance.

"Even if SK Hynix's second-quarter results come in slightly below market expectations, there is no need to interpret that as a sign that the semiconductor cycle has peaked," Lee of Daishin Securities said. "The recent downward revisions to profit forecasts reflect an adjustment in earnings expectations, and if SK Hynix's results revive expectations for semiconductor profit growth, the Kospi could gain momentum for a rebound."

Next week also brings a series of domestic and international economic and monetary policy events. South Korea's producer price index for June is due Wednesday, which will shed light on how the stabilization of energy prices following the US-Iran ceasefire MOU has fed through to producer prices. South Korea's second-quarter GDP figures are due Wednesday and will offer a gauge of how much semiconductor exports and a recovery in domestic demand contributed to growth despite a high base effect. The European Central Bank's monetary policy meeting is also scheduled for Wednesday. With a majority of ECB members having signaled a possible pause in July after raising the benchmark interest rate by 25 basis points last month, market attention is focused less on whether rates will rise again and more on the future direction of monetary policy.

Analysts expect that if investor sentiment recovers on the back of next week's major earnings releases, foreign investor flows will also gradually improve. Yuanta Securities Korea noted that retail investors' capacity for additional buying has weakened during the recent sharp decline, while foreign and institutional investors have begun stepping in to buy at lower levels, marking a shift in the dominant net buyers. With foreign ownership near historical lows and the won-dollar exchange rate stabilizing, continued net buying of Korean equities by foreign investors could amplify the market's rebound momentum.

"A strategy centered on large-cap semiconductor stocks should be maintained, but if regulatory measures on single-stock leveraged ETFs and government policies to revitalize the Kosdaq ease the concentration of flows, a rotation into small- and mid-cap growth stocks that have been overlooked for an extended period could broaden," said Lee Jae-won, an analyst at Yuanta Securities Korea. "Kosdaq stocks that have fallen sharply but are seeing upward revisions to their earnings forecasts are worth watching for buying opportunities."


hajun825@heraldcorp.com