A diagnosis has emerged that weakness in the KOSDAQ market is continuing as semiconductor stocks surge and soak up market liquidity. iM Securities projected that only when the KOSPI reaches around 11,000 points and the rally in leading stocks takes a breather will funds likely rotate into the previously neglected KOSDAQ and biotech sectors.

The closing price appears on the dealing room display board at Hana Bank headquarters in Jung-gu, Seoul, on the 19th, after the KOSPI index hits an intraday record high and then ends lower. In the Seoul foreign exchange market, the dollar-won exchange rate records 1,527.0 won, down 0.1 won from the weekly closing at 3:30 p.m. the previous day. /Courtesy of News1.

Kim Jun-young, an analyst at iM Securities, said, "AI capital expenditures have become a black hole for funds, pushing up real interest rates," and noted, "Rising rates weigh on growth stocks whose cash flows are concentrated far in the future, such as biotech and software (SaaS), as well as sectors with bond-proxy characteristics, such as REITs, utilities, and telecom."

However, the report assessed that it is difficult to view the cause of KOSDAQ's weakness as a simple fundamentals issue. Kim said, "KOSDAQ is criticized for weaker fundamentals than the KOSPI, but market crowding is as much a factor as fundamentals," adding, "KOSDAQ remains at late-January levels, and even the KOSPI, excluding the so-called 'S7'—Samsung Electronics, SK hynix, SK Square, Samsung Electronics preferred, Samsung Electro-Mechanics, Samsung Life Insurance, and Samsung C&T—has similarly reverted to early-February levels."

Kim compared the current market to the dot-com bubble in 1999. "In 1999, only IT did well," he said, analyzing that "until the market broke, only the sectors and stocks that had been leading kept rallying." He added, "If you believe semiconductors have more room to run now, you should minimize allocations to other sectors," projecting that a leadership-driven market will continue for the time being.

However, he left open the possibility of a rebound in KOSDAQ and biotech. Citing the U.S. market in 1999, Kim explained, "The most sluggish and neglected sectors delivered the best performance in the very next phase." As IT peaked then and healthcare and staples strengthened, the analysis is that the domestic market could also see a KOSDAQ rebound led by biotech when the leading-stock rally wraps up.

He viewed the point at which gains in leaders such as Samsung Electronics and SK hynix slow as the starting line for a KOSDAQ rotation. Kim said, "Samsung Electronics and SK hynix are expected to post peak operating margins for this cycle in the second to third quarters," adding, "After that, questions about the durability of profits will begin." He added, "It will not be too late to consider a rally in major neglected sectors such as KOSDAQ and biotech after the KOSPI reaches around 11,000 points on the back of the semiconductor rally."

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