Samsung Electronics announced record results and became the company with the largest quarterly profit in the world, but the KOSPI index instead plunged. Concerns that the semiconductor supercycle may have peaked prompted a wave of profit-taking.
On the 7th, the KOSPI index closed at 7,656.31, down 4.91% (395.02 points) from the previous trading day. The KOSDAQ index also finished at 831.23, down 15.84 points (1.87%) from the day before.
The KOSPI opened at 7,919.20, down 1.64% from the day before, but extended its intraday losses. As the index plunged, a sell sidecar, which temporarily halts program sell orders, and a circuit breaker were triggered in succession. It was the 16th sell sidecar this year and the sixth circuit breaker.
In the Korea Exchange, foreigners were net sellers of 3.3864 trillion won and institutions 697 billion won. Individuals alone bought nearly 4 trillion won.
The sharp drop in the domestic stock market is largely attributed to Samsung Electronics' earnings surprise. Kang Jin-hyuk, senior researcher at Shinhan Investment & Securities, said, "As with the recent Micron earnings surprise that also sparked sell-offs, it appears that concerns about a peak in record profits played a role," adding, "Preemptive profit-taking by investors emerged."
Before the open, Samsung Electronics announced on a consolidation basis that second-quarter revenue was 171 trillion won and operating profit was 89.4 trillion won. Revenue surged 129.3% and operating profit 1,810.3% from a year earlier. It is the largest on record for three consecutive quarters.
Kim Seok-hwan, researcher at Mirae Asset Securities, said, "Samsung Electronics' second-quarter operating profit increased more than 50% from the previous quarter, far exceeding securities firms' forecasts," adding, "If about 20 trillion won in performance bonus provision is included, profit would rise to about 110 trillion won, greatly beating market expectations."
Despite the record earnings surprise, the KOSPI index and Samsung Electronics' share price instead saw a sharp correction. Samsung Electronics fell 6.92% at the close, and SK hynix also ended down 6.06%.
Jo A-in, researcher at Samsung Securities, said, "Reasons for the sharp decline in the KOSPI index appear to include profit-taking after gains in memory chip stocks, concerns that memory chip corporations' profits have peaked, and questions about the sustainability of investment in artificial intelligence (AI)."
As for the correction in Samsung Electronics' share price, analysts in the securities industry cite significant effects from foreign investors' profit-taking and rebalancing. Researcher Kim said, "The biggest reason for the share price correction is the combined, ongoing impact of foreign investors' profit-taking and rebalancing," adding, "Foreigners have continued net selling for 13 consecutive trading days since the 19th of last month." The foreign ownership ratio relative to Samsung Electronics' market capitalization fell to about 47%, marking the lowest level in about 16 years.
There is also analysis that supply–demand effects from single-stock leveraged exchange-traded funds (ETFs) are significant. Single-stock leveraged ETFs go through a rebalancing process that adjusts portfolios just before the close each day to track a multiple of the underlying index's daily return.
Researcher Kim said, "Rebalancing demand from leveraged ETFs creates artificial short gamma exposure, reinforcing forced trading flows with price moves," adding, "Today's decline in Samsung Electronics also appears to have amplified this supply–demand feedback loop."
Hanwha Ocean reportedly failed to win the roughly 60 trillion won contract for Canada's next-generation submarine program (CPSP), and shipbuilding and defense stocks also struggled. Hanwha Ocean fell 22.65% on the day.
Volatility in the market led by semiconductor stocks is expected to continue. Researcher Kang noted that SK hynix's American depositary receipt (ADR) listing scheduled for the 10th also has room to act as a "sell on" catalyst, adding, "In big tech results due at the end of July, demand for AI chips is key."