After an unrelenting rally in the first half that drove the KOSPI to a record high, the index has faced a sharp pullback recently, intensifying a game of chicken in the market over the second-half direction. Concerns about reduced artificial intelligence (AI) investment by U.S. big tech and profit-taking driven by overheated flows have poured into the market, raising tension.
Domestic stock market experts offered a range of views on the pullback, from interpreting it as a temporary, short-term correction to analyzing it as heightened volatility caused by a structural tilt toward semiconductors.
A ChosunBiz survey of research heads at eight major domestic securities firms (KB, Shinyoung, Mirae Asset, Daishin, Samsung, Kiwoom, Meritz, Hana) on their second-half stock market outlook found the expected KOSPI band ranged from a low of the 7,300 level to a high of the 12,600 level. The heads observed that upward revisions to corporations' earnings forecasts would push up the top end of the index.
Yoon Seok-mo, head of research at Samsung Securities, who presented the most optimistic outlook, expected the second-half bull run in Korea's stock market to continue, with the KOSPI moving between the 8,400 and 12,600 levels. Yang Ji-hwan, head of research at Daishin Securities, cited upward earnings revisions for semiconductor and non-semiconductor corporations to suggest a 7,500–11,500 band. Hwang Seung-taek, head of research at Hana Securities, likewise said the ceiling could open up to the 7,300–11,450 level based on next year's net income estimates. Lee Jin-woo, head of research at Meritz Securities, also said continued upward revisions to earnings estimates would increasingly cap downside volatility and projected a 7,500–11,500 band. Kim Dong-Won, head of research at KB Securities, maintained the existing 10,500 target for the KOSPI this year.
◇ Foreign selling pressure… not "sell Korea," but rebalancing among leading markets
On foreign investors' selling offensive, the research heads characterized it as profit-taking and portfolio rebalancing, not a structural exit from the Korean market. Lee Jong-hyung, head at Kiwoom Securities, stressed that 90% of foreigners' net selling in the first half was concentrated in semiconductors, diagnosing it as typical rebalancing-driven profit-taking in semiconductor names. Lee Jin-woo, head at Meritz Securities, also noted that despite foreigners' net selling, their equity ownership ratio is on an upward trend, assessing it as rebalancing at elevated levels rather than a scaling back of Korea exposure.
Kim Dong-Won, head at KB Securities, said, "Korea, Taiwan, Japan and the United States, which all rank high in global stock gains this year, share the commonality of being AI-related countries," adding, "Funds that recently left Korea and Taiwan merely moved to Japan and the United States, which rose less by comparison, and sentiment toward the AI industry has not broken; this is a redeployment of capital within the same group of AI-investing countries." Yoon Seok-mo, head at Samsung Securities, also explained that foreigners have tended to take profits relatively more in markets such as Taiwan and Korea that have risen more.
Some even said the real force supporting the market is the inflow of domestic funds. Kim Hak-kyun, head at Shinyoung Securities, said, "Since the start of the year, a very strong 'MoneyMove' from banks and insurers into the stock market has been evident," adding, "New fund inflows combining equity funds and direct investment capital amount to 133 trillion won, and despite foreigners engaging in record net selling, domestic funds absorbed it, allowing the market to hold up."
◇ Concern about pension fund selling… "Market downside shock will be limited"
Regarding concerns that, due to the index surge in the first half, the National Pension Service could mechanically unload a large volume of shares in the second half, the prevailing view was that "the market can comfortably absorb it."
According to Samsung Securities' estimates, as of the end of March this year, the National Pension Service's domestic equity weighting was 21%, but due to the index's rise it has recently swelled to 30.8%. Yoon Seok-mo, head at Samsung Securities, said, "Considering the discretion allowed for strategic and tactical asset allocation (up to 29.8%), the equity weighting will need to be reduced by about 1 percentage point by year-end," adding, "While not a small amount, it should not be burdensome."
Yang Ji-hwan, head at Daishin Securities, said the historical impact of pension fund trading on the ups and downs of the domestic market has been limited. Yang said, "When reflecting the permitted band for strategic and tactical adjustments, the overweight narrows significantly to around 1 percentage point," adding, "From an index perspective, above the 8,300 level, selling pressure from rebalancing could build, but we judge the impact of pension rebalancing supply on the market to be limited and should be treated as a neutral factor."
Park Yeon-joo, head at Mirae Asset Securities, also viewed the National Pension Service as aiming to minimize market shock as a basic policy, seeing the effect as a temporary slowdown in flows rather than a shock. Lee Jin-woo, head at Meritz Securities, likewise said it will be difficult for the pension to be an incremental buyer, but given the first-half average daily turnover (about 35 trillion won) and the fund's daily sell limits, the downside impact on flows appears limited.
However, Hwang Seung-taek, head at Hana Securities, pointed out that, in the short term, some selling could emerge during quarter-end and month-end rebalancing, making it a factor that could amplify volatility at specific points, and Lee Jong-hyung, head at Kiwoom Securities, also said it could partially reduce gains in large-cap stocks.
◇ In the end, it's earnings… use wider volatility as a chance to increase exposure
The research heads agreed that while the market may widen its short-term swings in the tug-of-war over flows between foreigners and pension funds in the second half, the decisive drivers will ultimately be corporations' "earnings" and "fundamentals." Yang Ji-hwan, head at Daishin Securities, said, "Strong second-quarter results and bond yields and the dollar stabilizing on lower oil levels are the drivers for the KOSPI to level up in Jul. and Aug.," adding, "Volatility stemming from weaker sentiment and flow concerns should instead be used as an opportunity to increase exposure."
However, the research heads saw the second-half index ceiling as wide open but expected a volatile market with large swings to continue. They cited the historically high weighting of semiconductors in the KOSPI.
Kim Hak-kyun, head at Shinyoung Securities, pointed out that Samsung Electronics and SK hynix together account for about 57% of the KOSPI's market capitalization, noting that because both are in the semiconductor industry and tend to rise and fall together with the cycle, this structure is amplifying swings across the market. "Semiconductors are a representative cyclical sector with large changes in results and earnings estimates," Kim said, adding, "This very structure is increasing market volatility."
Hwang Seung-taek, head at Hana Securities, also judged that deepening reliance on the two large-cap stocks and the expanding influence of ETF flows make wider index swings unavoidable. Lee Jin-woo, head at Meritz Securities, likewise raised the possibility that volatility will persist for the time being due to factors such as single-stock leverage.
Lee Jong-hyung, head of research at Kiwoom Securities, said, "Twelve-month forward earnings estimates for key sectors, including semiconductors, are holding firm."