As the KOSPI index has plunged more than 28% over the past month, a forecast has emerged that a "V-shaped rebound" like the one seen during the COVID-19 period cannot be expected immediately. Unlike during COVID-19, the Bank of Korea (BOK) is more likely to raise rates further, coupled with concerns over deteriorating cash flows at global big tech companies.
Huh Jae-hwan, an analyst at Eugene Investment & Securities, said this on the 27th, adding, "It is expected to take about a month to recover from the stock price declines."
The KOSPI fell 28.5% from its intraday high of 9,114 points on June 21 to 6,516 points on July 20. SK hynix's (000660.KS) share price also dropped 39.6% from its closing-price high. This KOSPI decline (-28.5%) is the largest drop since COVID-19 (-36%), the U.S. rate hike phase in 2022 (-31%), and the 2008 global financial crisis (-54%). "The extent of this year's stock price gains must be taken into account, but excluding the possibility of a financial crisis, the recent domestic stock price decline has proceeded excessively in the short term," Huh said.
According to Huh, stock markets show two patterns after sharp declines. In one, stocks rebound sharply after a plunge, as during COVID-19 when they fell 36% over about two months. In the other, markets search for a bottom over a fairly long period following a prolonged decline, as in 2022 when they fell 35% over 14 months.
This KOSPI plunge since last month is a short-term sharp decline. The analysis is that it more closely resembles the COVID-19 phase than 2022. However, Huh pointed out, "This time, a V-shaped recovery is difficult to expect." He said, "This is because interest rates, or the direction of monetary policy, are markedly different compared to the COVID-19 period," adding, "Expectations for further rate hikes by the Bank of Korea are far stronger than those for the U.S. Federal Reserve (Fed)."
Persistent concerns over slowing profit margins and deteriorating cash flows at big tech companies, which are domestic semiconductor demand sources, were also cited as burdens. "Alphabet's earnings last week were excellent, but its operating profit margin slowed to 34.2% from 36.6% in the first quarter," Huh said. "Free cash flow turned negative for the first time. Doubts about the sustainability of capital expenditure continue."
The impact of leveraged ETFs was also mentioned. "Trading value for the Samsung Electronics single-stock leveraged ETF has fallen back to levels seen before its launch on May 27, while trading value for the SK hynix leveraged ETF has not declined," Huh said. "Trading value for the SK hynix leveraged ETF exceeded that of the underlying stock, or base asset. The aftereffects of leveraged ETFs are being resolved but have not ended."
Huh said, "As the short-term stock price decline is unusual, downward pressure on the domestic stock market is expected to gradually subside. The KOSPI's PER (12-month forward), excluding semiconductors, is at 7 to 8 times, the lowest since April last year," adding, "But compared to the recent decline, more time appears necessary before stock prices recover completely."
He added, "The stock recovery process is not expected to be limited to semiconductors," noting, "Judging by the rate of decline from this year's high, attention to industrial goods such as machinery, shipbuilding, and construction, along with the hard-hit semiconductor and IT hardware sectors, appears necessary."
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