As projections emerge that the KOSPI corporations' profit growth rate will slow, concerns are mounting about a peak-out in results, centered on semiconductors. Still, securities analysts said that, judging from past cases, even if the profit growth rate slows, as long as corporations' profits themselves continue to rise, the stock market's upward trend can also continue.
Heo Jae-hwan, a researcher at Eugene Investment & Securities, said on the 20th that although supply-and-demand factors such as leveraged exchange-traded funds (ETFs) played a role in the sharp drop in the domestic stock market in June–July, considering that the KOSPI fell by nearly 25% after June 22, it is hard to explain the decline by supply and demand alone. He analyzed that the recent correction appeared as the potential slowdown in the second-half profit growth rate coincided with the sharp stock price gains in the first half.
Eugene Investment & Securities projected that the semiconductor operating profit growth rate will peak at 640% this year and slow to 42% next year, while the KOSPI operating profit growth rate will slow from 220% this year to 35% next year.
Heo said stock prices react more sensitively to the slope of the profit growth rate than to profits themselves, adding that in the past the KOSPI tended to form a peak 2–3 months before the operating profit growth rate and 4–5 months before operating profits themselves.
Still, he noted that corporations' profits themselves are continuing to rise. Heo said that even if the profit growth rate slows, if corporations' profits keep increasing, confidence in a market rise is likely to recover.
He assessed that the domestic market is particularly sensitive to a slowdown in the profit growth rate because domestic corporations' results are heavily affected by the economic and investment cycles. He explained that in the past, after a slowdown in the profit growth rate, there were not a few cases in which profits actually declined and stock prices fell further.
However, he analyzed that even when the profit growth rate slowed, in periods when corporations' profits continued to rise for two to three years, the market climbed again. Heo said that in 2007–2008 and 2016–2018, valuations recovered before corporations' profits, and stock prices rose again.
He also interpreted the semiconductor sector as a change in the growth phase rather than a deterioration in results. Heo said the recent plunge in semiconductor stocks reflects expectations that the phase in which results improve only through price (P) hikes is ending and will shift to a growth phase centered on volume (Q) expansion, adding that while margins may slow, the likelihood that profits themselves will decline is not high.
He added that confidence that domestic corporations' profit growth can continue even after the growth rate passes its peak has not yet formed sufficiently, and predicted that it will take some time for the market to stage a full-fledged rebound after the sharp drop.