Korean stocks swung sharply this week, caught between a surge in long-term U.S. interest rates and a bold shareholder-return plan from a major chipmaker. A jump in the U.S. 30-year Treasury yield above 5.3% jolted the market, but investor sentiment recovered quickly after SK hynix (000660.KS) unveiled a large-scale plan to buy back and cancel its own shares. Still, with upward pressure on long-term U.S. rates persisting and major events such as Nvidia's earnings and the Jackson Hole meeting scheduled for next week, analysts expect market volatility to continue for some time.
Foreign Buyers Return, but U.S. Treasury Yields Build a Wall
The first factor to shake the market this week was long-term U.S. interest rates. With Treasury supply burdened by expanded fiscal spending, compounded by rising corporate bond issuance from Big Tech to fund artificial intelligence (AI) infrastructure investment, the U.S. 30-year yield topped 5.3% and the 10-year yield rose above 4.7%. Oil price jitters stemming from the Middle East also weighed on appetite for risk assets.
As a result, domestic stocks took a direct hit from rising long-term U.S. rates starting on the 18th, right after the Liberation Day holiday. The KOSPI climbed as high as 7,216.62 points during the session, breaking through the 7,200 mark, but gave back all its gains in the afternoon to close at 6,869.83. The intraday swing alone reached 427.84 points, the widest so far this month.
Although supply-and-demand conditions improved as foreign investors bought domestic shares for days on end and the won-dollar exchange rate eased to around 1,400 won, the valuation burden from rising rates overwhelmed those gains. When rates rise, the present value of future earnings declines, increasing the price burden on stocks — particularly growth stocks — which sharply chilled sentiment in the domestic market.
Calm in U.S. Treasury Yields Fuels Shareholder-Return Optimism, Chips Lead Rebound
What changed the mood midweek was a stabilization in U.S. Treasury yields and shareholder-return plans from major domestic chipmakers. First, yields settled after the U.S. Treasury expanded its buyback of long-term government bonds on the 19th local time. When the government repurchases bonds already in the market, it eases the supply burden and lowers upward pressure on rates.
On top of that, on the 19th, SK hynix announced it would buy back and cancel 40 trillion won ($28.8 billion) worth of its own shares within the next three months and return more than 50% of cumulative free cash flow (FCF) from 2025 to 2027 to shareholders. By raising its return threshold from "within" 50% to "more than" 50%, expectations grew that the stock's undervaluation could be resolved. JPMorgan assessed the 40 trillion won buyback as an aggressive shareholder-return plan compared with global peers, saying it amounted to 63% of the company's FCF over the past 12 months. Domestic and overseas brokerages estimate SK hynix's total shareholder returns will reach 150 trillion to 230 trillion won through next year.
The following day, the 20th, the KOSPI closed at 6,852.58, up 381.41 points, or 5.89%, from the previous session. As the index surged, a buy sidecar was triggered in the KOSPI market — the 24th such instance this year.
Expectations for expanded shareholder returns at Samsung Electronics (005930.KS) also lent strength to the rebound. The market expects Samsung to unveil a shareholder-return plan of around 150 trillion won. While SK hynix emphasized share buybacks and cancellations, Samsung is expected to weight dividends relatively more heavily. Mirae Asset Securities analyzed that the discount on Samsung's preferred shares versus common shares stood at 25.2%, above the long-term average of 21.7%, meaning the price gap between preferred and common shares could narrow if large-scale dividends materialize.
The market sees this expansion of shareholder returns at major chipmakers as a positive for foreign investment flows as well. With chip stocks having undergone a steep correction amid profit-taking and overvaluation concerns, the view is that share buybacks and cancellations will support a price floor, and that if worries about the memory chip market also ease, foreign investors could continue returning to the domestic market. Indeed, foreign investors maintained a net-buying stance in the KOSPI market this week, underpinning the index's rebound.
Stocks Rebounded on Large Shareholder Returns, but Is It Sustainable?
Whether this rebound can continue, however, remains to be seen. While U.S. bond buybacks can ease the market's supply burden, they do not eliminate the fundamental drivers pushing up long-term rates, such as the fiscal deficit, growing bond supply and inflation. Last month's Federal Open Market Committee (FOMC) minutes also reaffirmed the U.S. Federal Reserve's wariness about inflation.
The same goes for the chipmakers' shareholder-return plans. Share buybacks and cancellations are favorable in that they raise per-share value and improve supply-and-demand conditions, but the medium- to long-term direction of stock prices ultimately depends on whether AI investment continues and whether memory chip prices and corporate earnings hold up, according to analysts.
Next week, a string of key events that will help gauge the market's direction is scheduled. Nvidia's earnings release should confirm the sustainability of the AI investment cycle, while the Jackson Hole meeting in the U.S. may offer clues about the future direction of monetary policy and rates. Domestically, the Bank of Korea's Monetary Policy Board will meet. After a week of sharp declines and sharp rebounds, the market is expected to search once again for direction next week, facing the two variables of interest rates and AI.
