As the KOSPI has repeatedly swung sharply and fallen nearly 20% from its peak, investor fatigue is mounting rapidly. Just two or three months ago, when the KOSPI plunged, it would recoup the losses the following day. Now, days of only modest gains or consecutive declines have become more frequent. Analysts say investor sentiment is wavering as expectations for artificial intelligence (AI) investment and the semiconductor industry outlook—which drove the domestic stock market this year—enter a phase of reassessment, while single-stock leveraged exchange-traded funds (ETFs) amplify volatility.
According to a survey conducted by Seoul Economic Daily of research center heads at major securities firms on the 9th, experts presented KOSPI 7000 as a short-term psychological support line. They noted that the future direction of the market will be determined by U.S. Big Tech's stance on expanding capital expenditure (CAPEX) and earnings announcements by semiconductor companies.
According to the Korea Exchange (KRX), the KOSPI closed at 7,291.91 on the day, up 45.12 points (0.62%) from the previous trading session. It rebounded for the first time in four trading days, following declines on the 6th (-0.46%), the 7th (-4.91%), and the 8th (-5.35%), but the loss of momentum was clearly evident. Retail investors, who had accompanied the KOSPI's rise, net-sold 1.2673 trillion won, showing that their confidence had weakened.
The securities industry interpreted the correction as a reassessment process for AI investment momentum. Yoon Chang-yong, head of Shinhan Securities' research center, said, "Frequent volatility recently is raising investor fatigue," adding, "As doubts grow over the sustainability of AI capital investment and semiconductor profit growth rates that had supported the market's rise, the appetite for profit-taking expanded, and volatility increased as various macroeconomic variables were layered on top." Jung Yong-taek, chief economist at IBK Securities' research center, explained, "The recent decline was most heavily influenced by doubts about AI and semiconductor investment," adding, "A rebound emerged following the excessive drop, but volatility widened again as geopolitical uncertainty related to Iran was compounded."
Concentration in semiconductors and single-stock leveraged ETFs were also cited as factors amplifying market volatility. Choi Hyun-jae, head of Yuanta Securities' research center, pointed out, "As ETF trading value has grown to a level comparable to the trading value of the stock market, a 'wag the dog' phenomenon is emerging, in which ETF trading moves the prices of the underlying assets." Kim Hak-kyun, head of Shinyoung Securities' research center, assessed, "With leveraged products added to a market structure heavily dependent on the semiconductor industry, investor anxiety is growing."
Regarding retail investors' net selling, many said it was too early to interpret it as an exit from the market. They explained that it was the combined result of profit-taking and loss-cutting. Lee Jong-hyung, head of Kiwoom Securities' research center, analyzed, "As investor fatigue grew amid the recent plunge, it appears that the psychology of trying to reduce losses on a rebound played some part." However, some interpreted it as forced liquidation that occurred during the sharp swings and demand to trim some positions.
Experts generally presented KOSPI 7000 as a psychological support line. Yoon said, "The 7000 line is a psychological support, and the 100-day moving average at 6,840 remains," adding, "If panic selling driven by supply-demand and sentiment occurs, there is a possibility of temporary undershooting." Lee Jong-hyung also forecast, "At the 7000 line, historically the forward price-to-earnings ratio (PER) is in the range where it falls to financial crisis levels," adding, "The possibility of further prolonged decline is not high."
As for investment strategy for retail investors, advice continued that risk management should come first. It was also added that in a volatile market, leveraged investment makes risk management difficult. Jung, the chief economist, recommended increasing cash holdings, saying, "The fact that a stock price is falling even when there is no damage to fundamentals, as with Samsung Electronics, means that ordinary momentum will find it difficult to change the trend." Kim said, "Short-term prices can be greatly shaken at any time, but in the long term, corporate earnings and the direction of the industry determine stock prices." Answers that, just one or two months ago, suggested riding semiconductors as a leading sector and rotating into other sectors have virtually disappeared. In fact, most sectors, including shipbuilding, power, and securities, have fallen more than 30% from their peaks over the past one or two months. Some experts at least suggested responding by buying semiconductors and other stocks in installments if there is cash available.
Experts cited earnings announcements by U.S. Big Tech and semiconductor companies as the future event that could trigger a market rebound. Lee Jin-woo, head of Meritz Securities' center, stressed, "The process of confirming whether AI investment demand is still alive will continue through SK hynix's American depositary receipt (ADR) listing and earnings announcements by U.S. Big Tech," adding, "If the market confirms future momentum beyond expectations, recovery could also reappear quickly." Yoon also said, "If free cash flow (FCF) and capital expenditure guidance are raised again in the late-July earnings announcements by semiconductor and Big Tech companies, much of the recent noise surrounding semiconductors will also subside." The market also cites the U.S. Consumer Price Index (CPI), the Federal Reserve's benchmark interest rate decision, and the U.S. 10-year Treasury yield as key variables.
