The recent rollercoaster swings in Korea's stock market are not the result of a reversal in corporate earnings momentum, but rather a temporary effect of rate pressures masking those earnings, according to an analysis. The view holds that once inflation concerns ease on falling international oil prices, market attention will turn back to artificial intelligence (AI) and memory chips.
Hana Securities Research Center said in a report Monday that "June for the Korean stock market is not the end of an earnings-driven rally, but a phase temporarily obscured by rate noise," adding that "as fears over rates subside, the market's mainstream will return toward AI bottlenecks and memory leaders."
According to the report, the key drivers leading Korea's stock market since the start of this year have been expanded AI infrastructure investment, a supply shortage of high-bandwidth memory (HBM), strengthened pricing power among memory companies, and upward revisions to earnings forecasts at major firms.
However, the analysis noted that the market recently priced in the burden of rising rates ahead of corporate earnings, as strong U.S. employment data, retreating expectations for Federal Reserve rate cuts, and the possibility of additional rate hikes by the Bank of Japan (BOJ) came into focus.
Hana Securities pointed out that recent market volatility need not be viewed as a structural signal of decline.
In fact, sidecars have been triggered 25 times on the KOSPI and 14 times on the KOSDAQ this year, but buy and sell sidecars appeared in alternation. Rather than the market collapsing in one direction, the index repeatedly surged and plunged, passing through cycles of overheating and cooling.
The brokerage cited international oil prices as the key variable to ease rate pressures. Oil prices have recently been on a downward trend, reflecting expectations of a U.S.-Iran ceasefire agreement, the possibility of normalized passage through the Strait of Hormuz, and easing geopolitical risks.
A decline in oil prices lowers inflation expectations and has the effect of curbing upward pressure on rates. The assessment is that for Korea in particular, which has a high dependence on energy imports, this could bring positive effects such as stabilized import prices, an improved trade balance, a stronger won, and inflows of foreign capital.
The key variable for the market to rise further going forward is the return of foreign investors. According to the report, foreign investors have net-sold approximately 124 trillion won on the KOSPI since the start of the year, while individual investors have net-bought 79 trillion won. In this process, the balance of credit loans used to buy stocks on borrowed money also grew to as much as 29 trillion won.
Hana Securities interpreted this not as foreign investors leaving the Korean market, but as temporarily reducing their weighting in domestic stocks that had surged. In particular, it forecast that SK hynix's issuance of American Depositary Receipts (ADR) in the United States could serve as a catalyst for the return of foreign capital.
Once an ADR is issued, U.S. investors can invest in SK hynix through dollar accounts without the burden of currency exchange, settlement, or taxes. Accordingly, the report explained that inflows are also expected from U.S. technology stock funds and exchange-traded funds (ETFs) related to semiconductors and AI.
Hana Securities cited Micron's earnings release scheduled for the 24th, SK hynix's detailed ADR plans, and the second-quarter earnings announcements from Samsung Electronics and SK hynix as short-term watersheds that will determine the future course of the market.
The report stated that "in a good bull market, earnings come first, supply and demand follow, and valuations open up again," adding that "if the company holding the bottleneck in the AI era has not changed, there is no need to change the investment strategy."
Meanwhile, as of 9:50 a.m. Monday, the KOSPI was trading at 8,631.18, up 1.0% from the previous session. SK hynix rose 2.27% to 2.34 million won, while Samsung Electronics traded down 0.45% at 335,500 won.
