Although the KOSPI plunged nearly 30% in a short span recently, easing much of the valuation burden, an analysis said a "V-shaped rebound" like during the COVID-19 pandemic is unlikely. Even if stocks have entered a bottoming range, interest rates, the semiconductor cycle, and the impact of leveraged ETFs remain, meaning recovery will take time.

On the 24th, when the KOSPI gives up the 7,000 mark after just one day, a dealer room display at the Hana Bank headquarters in Jung-gu, Seoul shows the closing prices. The KOSPI closes at 6,690.62, down 406.27 points (5.72%) from the previous close, and the KOSDAQ finishes at 748.22, down 42.06 points (5.32%). In the Seoul foreign exchange market, the dollar-won rate records 1,466.6 won, down 0.2 won from the 3:30 p.m. weekly close the previous day. /Courtesy of News1

Heo Jae-hwan, a researcher at Eugene Investment & Securities, said in a report on the 27th, "The domestic stock market is more similar to the COVID-19 phase than to 2022 in that it is a short-term plunge, but this time a V-shaped recovery is hard to expect."

The KOSPI fell 28.5% from an intraday high of 9,114 on June 21 to 6,516 on July 20. This is the largest drop since COVID-19 (-36%), U.S. tightening in 2022 (-31%), and the 2008 global financial crisis (-54%). Even considering the sharp rise in the first half of this year, it is assessed that, excluding the financial crisis, an unusually rapid correction occurred in a short period.

The report analyzed that after past plunges, the stock market largely followed two paths. One is a quick rebound after a short-term plunge as in COVID-19, and the other is a case like 2022, where the market fell for a long time and then spent months forming a bottom. It said this correction resembles COVID-19 in the plunge pattern, but the recovery pace is likely to be slower than then.

The biggest reason is the monetary policy environment. During COVID-19, ultra-low rates and ample liquidity drove a rebound, but now the possibility of additional rate hikes by the Bank of Korea remains, making the financial backdrop very different. The report projected that even if prices pass through a bottom, it will take at least about a month to recoup the losses.

Uncertainty surrounding the semiconductor cycle is also a factor. Alphabet reported results that beat market expectations, but its operating margin slowed and free cash flow turned negative, leaving questions over whether big tech's AI capex can continue at the current pace.

It also assessed that the impact of leveraged ETFs has not been fully resolved. Trading in the single-stock leveraged ETF on Samsung Electronics has fallen back to pre-launch levels, but the trading value of the SK hynix leveraged ETF still exceeds that of the underlying asset, leaving a source of volatility.

However, the securities industry projected that additional downside pressure will gradually ease given the steep recent drop. Excluding semiconductors, the KOSPI's 12-month forward price-earnings ratio (PER) stands at 7–8 times, the lowest since April last year.

Heo projected that the subsequent recovery will not be confined to semiconductors alone. Along with semiconductors and IT hardware, industrials such as machinery, shipbuilding, and construction—which saw steep declines this year—could draw interest during the recovery.

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