A brokerage report that pinpointed the moment SK hynix's (000660.KS) market capitalization overtakes Samsung Electronics (005930.KS) as a "signal of the bull market's end" is drawing renewed attention, as the chip-led KOSPI rally has been sharply rattled.
The KOSPI closed at 8,203.84 on Thursday, down 910.71 points, or 9.99%, from the previous trading day, according to the Korea Exchange. On a closing basis, it slipped back below the 8,000 line for the first time in three days.
About an hour before the market close, the KOSPI plunged more than 8%, triggering a first-stage circuit breaker. The circuit breaker is a measure that halts trading on the stock market for 20 minutes when the KOSPI falls 8% or more from the previous session's close and sustains that level for one minute. After the suspension is lifted, orders are received for 10 minutes and then processed at a single price.
The circuit breaker was triggered by the plunge in Samsung Electronics and SK hynix, which have led the domestic stock market boom. Samsung Electronics closed at 310,000 won, down 12.31% (43,500 won) from the previous trading day. SK hynix also tumbled 12.47% (364,000 won) to close at 2.555 million won.
Amid this crash, a report published on Nov. 18 by Hana Securities researcher Lee Jae-man is being revisited. Lee noted that "the signal for the end of the current bull market, which is based on growth in corporate earnings, is the moment SK hynix's market capitalization surpasses that of Samsung Electronics."
Indeed, the previous day SK hynix closed at 2.919 million won, up 5.61%, overtaking Samsung Electronics — long the unrivaled No. 1 by market value — to claim the top spot in KOSPI market capitalization.
The report viewed the phenomenon of the No. 1 market-cap position changing through stock overheating alone, without a reversal in earnings scale, as a peak of the bubble and a precursor to its collapse. The key point of the report at the time was that if the market-cap ranking flipped solely on a stock surge, without any change in the earnings fundamentals between the two companies, investors should brace for the end of the index's upward rally.
Lee explained, "For the implications of corporate earnings and a bubble collapse, it is worth looking at the case of 2000. On March 27-28, 2000, Cisco Systems overtook Microsoft and GE to become the No. 1 company by market capitalization within the S&P 500 index. But Cisco Systems' net profit in 2000 was 2.7 billion dollars, just 20% of GE's net profit at the time and only 28% of Microsoft's."
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