Analysts said the recent plunge in Korea's stock market was driven more by investor sentiment and supply-demand factors than by deteriorating fundamentals, suggesting further downside will likely be limited.
Park Sang-hyun, a researcher at iM Securities, said in a report on the 29th that "compared with past KOSPI correction phases, the current decline appears excessive," adding, "there are still no signs of a slowdown in Korea's export cycle, including semiconductor exports."
Recently, semiconductor stocks saw steep corrections as debates flared over the profitability of U.S. Big Tech's artificial intelligence (AI) investments, China's DRAM maker CXMT's listing, and rising U.S. Government Bonds yields. On top of that, increased trading in single-stock leveraged products further amplified volatility.
However, Park assessed that this correction differs in nature from the past. When the KOSPI fell sharply in previous periods, it coincided with an economic slowdown in which both overall exports and semiconductor exports declined. Even during the post-COVID-19 correction, total exports and semiconductor exports fell 27.4% and 54.5%, respectively, leading to a weak stock market.
By contrast, even though the KOSPI has corrected about 34% from its peak, exports are still on a solid trajectory. In particular, semiconductor exports are seeing both unit price gains and volume increases at the same time, making it likely they will continue to hit record highs in the second half.
The market's focus on U.S. hyperscalers' AI spending also has not reached a stage that would translate into credit risk, the assessment said. While free cash flow (FCF) has declined recently due to increased capital expenditures (CAPEX), operating cash flow (OCF) is still rising. In other words, the expansion of AI investment is not undermining corporations' ability to generate cash.
Caution toward China's semiconductor industry was also deemed somewhat excessive. Park said, "It is true that China's semiconductor industry is growing rapidly, but it will not be easy to catch up with domestic companies in a short period," adding, "although shares surged after CXMT's listing, they fell immediately the next day, suggesting the shock is still likely to be limited in duration."
Park interpreted the recent semiconductor stock plunge as a "panic sell" driven by investor sentiment and supply-demand factors rather than damage to fundamentals.
Park said, "The current stock price correction reflects a combination of supply-demand issues and various uncertainty risks more than fundamentals," adding, "additional downside is likely to be limited."
He added, "If strong semiconductor exports continue and U.S. Government Bonds yields stabilize, easing concerns about hyperscalers' credit risk, it would help restore investor sentiment."