Korea's stock market has struggled to find direction since the 31st, when it posted a record surge. The KOSPI seemed to rise a bit, then plunged nearly 5% again, failing to break away from the 6,200 level, and the KOSDAQ, which had climbed to the 800 level with buy-sidecars triggered for a record three straight sessions, also failed to sustain gains into the latter part of the week.
The key to an index rebound this week (the 10th–14th) is expected to be foreign inflows. With individual investor sentiment dampened by repeated sharp swings, analysts said a trend reversal is possible only if foreign funds return.
On the 12th and 13th, the United States will release July consumer price index (CPI) and producer price index (PPI) data back to back. Along with U.S. labor indicators, whether geopolitical tensions between the United States and Iran ease is also cited as a factor that will determine the direction of foreign flows.
◇ Will foreigners return? Focus on shareholder returns and policy changes
Last week (the 3rd–7th), the domestic market was highly volatile even as the KOSPI, which had plunged to the mid-5,000s, climbed back into the 6,000s. On the 3rd, the KOSPI fell more than 5%, triggering a sell-sidecar that temporarily suspended the effectiveness of program sell quotes, and on the 5th, as the index rebounded, a buy-sidecar was triggered instead.
In particular, price swings were large for Samsung Electronics and SK hynix, the No. 1 and No. 2 by market cap. On the 3rd, both stocks fell more than 8%, and SK hynix dropped more than 14% over two days on the 6th–7th. Still, the securities industry said the recent semiconductor weakness does not mean the artificial intelligence (AI) investment cycle itself has ended.
Lee Jae-won of Yuanta Securities Korea said, "The recent semiconductor weakness largely reflected a reset of elevated expectations," noting, "Concerns about optimizing memory capacity per server, rumors about price talks between SK hynix and Nvidia, disappointment with SanDisk's next-quarter guidance, and delays in shareholder-return announcements all surfaced at once."
Na Jeong-hwan of NH Investment & Securities also said, "There were questions about recovering AI investment costs, but big tech earnings again confirmed a trend of expanding AI capital expenditures (CAPEX)," adding, "Microsoft and Amazon, among others, also showed the potential to monetize AI through cloud services."
The question is whether investors will find grounds to assign higher value to Korea's market. With big tech and semiconductor earnings season, which drew market attention last month, now wrapped up, analysts say shareholder-return policies or policy improvements are needed to draw foreign funds back.
Earlier, Reuters reported on the 5th (local time) that Samsung Electronics and SK hynix plan to prepare and release measures to expand shareholder returns. SK hynix disclosed on the 7th that it will pay a quarterly cash dividend of 375 won per common share.
Na said, "At this point, institutional catalysts are needed more than earnings to draw additional foreign inflows," adding, "Shareholder-return policies must be fleshed out or policy changes should come first."
The KOSDAQ, which had risen for four straight sessions last week, faltered on the last trading day, the 7th, falling back below the 800 level. Although buy-sidecars were triggered for a record three consecutive sessions on the 31st of last month and the 3rd and 4th of this month, analysts said it is still early to expect a trend rebound.
Noh Dong-gil of Shinhan Investment & Securities said, "For the uptrend to continue, buying by investment trusts and pension funds must persist, and improvement in earnings for small and mid-cap stocks must also be confirmed."
◇ One week into single-stock leverage curbs: Transactions fell, but "balloon effect" is a variable
Meanwhile, a week after raising the base deposit for single-stock leveraged exchange-traded funds (ETFs) to 30 million won, trading value in related products has noticeably decreased. As concentration in certain large caps via leveraged products has eased, some say the impact of amplifying volatility in the domestic market could weaken compared to before.
However, a "balloon effect," where blocked domestic demand for leveraged investing shifts to overseas-listed products, is a variable. If overseas-listed leveraged ETFs on domestic stocks that are not subject to local regulations grow in size, trading that occurs in the management of these products could again amplify volatility in domestic share prices such as Samsung Electronics and SK hynix.
Jeong Hyeon-jong of Korea Investment & Securities Co. said, "The larger the overseas markets for leveraged and inverse ETFs operated abroad become, the more rebalancing trades can flow into the domestic market through foreign flows," adding, "In that case, trades could pile on in the direction of price moves, potentially increasing volatility in the domestic market."
He added, "It is difficult to control the balloon effect toward overseas products or even global demand to invest in the semiconductor cycle through domestic regulations alone," noting, "We need to watch further to see how much this measure reduces market volatility over the long term."