As roller coaster trading continues on Korea's main bourse, brokerages are concluding that expanded volatility is unavoidable for the time being. On top of this, analysts forecast that uncertainty over the U.S. Federal Reserve's monetary policy and renewed debate over artificial intelligence (AI) profitability will weigh on the market. In terms of investment strategy, however, analysts say a focus on leading stocks remains necessary, as Micron's strong earnings have raised expectations for the semiconductor earnings season.
According to the Korea Exchange on Saturday, the KOSPI closed last week (Dec. 22-26) at 8,411.21, down 7.08% from the previous week, with the index showing extreme volatility throughout. On Dec. 23, it plunged 910.71 points (9.99%) from the previous day, marking its largest-ever single-day decline, before rebounding 3.26% and 5.26% on Dec. 24 and Dec. 25, respectively. But on Dec. 26 it tumbled 5.81% again, giving back most of its gains. During this process, the KOSPI market saw circuit breakers triggered twice and sell-side sidecars activated in succession last week alone, producing an unusual "see-saw" market.
Analysts in the market say semiconductors are dictating the direction of the stock market. In particular, they interpret that while Samsung Electronics and SK hynix led the KOSPI's rally this year, foreign profit-taking concentrated after a short-term surge, expanding index volatility. In fact, last week foreign and institutional investors net sold 16.6372 trillion won and 3.0610 trillion won, respectively, in the securities market, while individuals net bought 19.1511 trillion won, absorbing the supply.
Both at home and abroad, semiconductor stocks continued their steep upward trend in the first half, accumulating overheating pressure, and renewed doubts over the sustainability of the AI investment race became the backdrop for the correction. The concern is whether future AI investment can lead to the profitability expected, amid growing cost burdens for global Big Tech firms from surging semiconductor prices. In addition, news that Apple raised prices across all its products due to the memory shortage and revised its next-generation chip roadmap dampened overall investor sentiment.
In the U.S. stock market last week, selling was also concentrated on semiconductors and tech stocks. Over the week, the Philadelphia Semiconductor Index plunged 7.94%, and the tech-heavy Nasdaq Composite Index also fell 4.60%. The Standard & Poor's (S&P) 500 Index likewise dropped 1.95% on the back of weakness in its tech stocks. By contrast, with a rotation as funds withdrawn from tech stocks moved into traditional industrial stocks, the blue-chip Dow Jones Industrial Average rose 0.60%.
Still, Korean brokerages believe solid semiconductor earnings expectations will support the market despite the extreme volatility. With Micron recently posting earnings that far exceeded market estimates, expectations are rising for Samsung Electronics' and SK hynix's second-quarter results, leading to the assessment that maintaining a focus on semiconductor leading stocks remains valid.
NH Investment & Securities set this week's expected KOSPI band at 8,400-9,500. Na Jeong-hwan, a researcher at NH Investment & Securities, said, "Event-driven volatility, rather than damage to fundamentals, is not a factor that breaks the trend." He added, "Since stock prices ultimately find their fair value even amid volatility, and that fair value is determined by earnings, it is necessary to maintain a strategy of expanding holdings centered on sectors with high earnings visibility."
The key variables this week are domestic and overseas economic indicators. The market is paying attention to Korea's June export-import data, to be released on the first of next month, and the U.S. June employment report, to be disclosed on the second. Kim Yu-mi, a researcher at Kiwoom Securities, said, "Financial markets are expected to focus on whether the Fed's tightening vigilance can ease through U.S. employment data and the ISM manufacturing and services indices." She explained, "With the recent May PCE inflation in line with market expectations and international oil prices also showing a downward trend, inflation concerns are calming somewhat."
