South Korean stocks experienced a sharp correction, with the KOSPI index falling over 20% from its June peak of 9385.59 points and the KOSDAQ breaking below the 800 level. Securities research center directors attributed the decline to a combination of geopolitical risks, US interest rates, and supply-demand imbalances rather than a fundamental deterioration in the semiconductor sector. The correction occurred despite record corporate earnings, with foreign investors selling for 22 consecutive trading days and individual investors joining the selloff. Analysts emphasized that the decline represents a supply-side shock driven by elevated expectations and external noise rather than an actual earnings downturn. The KOSPI's 12-month forward price-to-earnings ratio fell to around 6.2 times, a level last seen during the 2008 financial crisis.
Securities Directors Identify Geopolitical Risks and Interest Rates as Key Decline Factors
Edaily conducted an emergency market survey of major securities research center directors, who identified geopolitical risks, US interest rates, and concentrated supply-demand dynamics as the primary causes of the correction. Kim Hak-gyun, research center director at Shinyoung Securities, stated that the Iran conflict did not conclude as expected and US interest rates rose, causing risk assets including stocks to decline broadly rather than being limited to the semiconductor sector. Lee Jin-woo, research center director at Meritz Securities, explained that fatigue accumulated from the steep rally since early in the year, and the market became sensitive to small issues after earnings season events were exhausted, compounded by domestic supply-demand conditions.
The correction was marked by both foreign and individual investors selling. Foreign investors sold in the securities market for 22 consecutive trading days without interruption since a specific date. Individual buying capacity weakened, leaving no clear support for the market. Hwang Seung-taek, research center director at Hana Securities, noted that despite valuations falling to historic lows, institutional investors hesitated to buy due to internal risk management systems triggered by increased volatility, including Value at Risk (VaR), benchmark tracking error, and loss limits.
Analysts Reject Morgan Stanley Semiconductor Peak-Out Theory
Research directors largely dismissed Morgan Stanley's semiconductor correction thesis as an overreaction. Lee Jong-hyung, research center director at Kiwoom Securities, stated that peak-out discussions always emerge when markets decline, and there is no indication that Samsung Electronics or SK Hynix earnings will suddenly deteriorate — the concern arises only because stock prices fell. Lee Jin-woo of Meritz Securities said Morgan Stanley does not necessarily provide the correct answer, and the view that structural growth can continue remains intact, with the current situation far from showing signs of a cycle peak.
Hwang Seung-taek of Hana Securities explained that supply itself is structured to increase from 2028, so shortages will persist until then, and given the shortage of high-performance, low-power memory (LPDDR), there is no situation in the near term where supply will loosen and cause stock prices to fall.
Single-Stock Leverage ETFs Triggered 16 Sidecars in 1.5 Months
Single-stock leverage ETFs were identified as a volatility amplifier. This year, sidecars were triggered 49 times (31 times for KOSPI, 16 times for KOSDAQ) and circuit breakers 8 times. Of these, 16 sidecar triggers and 5 circuit breaker activations occurred in the 1.5 months following the launch of single-stock leverage ETFs. Lee Jin-woo of Meritz Securities stated that the issue is less about the product itself and more about the concentration of supply-demand in the top one or two stocks by market capitalization, with leverage ETFs acting as amplifiers during periods of high market volatility.
Hwang Seung-taek warned individual investors that leverage short-term trading is extremely dangerous in the current market environment, stating that predicting a market that falls for three to four consecutive trading days is unrealistic, and leverage investing amid such volatility is excessively aggressive.
Analysts identified the US June Consumer Price Index (CPI) release on local time July 14 and big tech earnings and capital expenditure (Capex) guidance later in the month as key variables. Support levels were generally estimated in the low 7000s range. Shinhan Investment & Securities cited 7550-7650 as the first support level, with 7100-7250 as the next support if breached. IBK Investment & Securities identified strong support near 7300, while Daishin Securities noted that undershooting below 7000 is possible but would present a buying opportunity.
KOSDAQ Decline Tied to Fund Concentration in Top Stocks
The KOSDAQ's failure to rebound after breaking below 800, instead showing weakness alongside semiconductors, was attributed to fund concentration. Lee Jae-man, global investment analysis director at Hana Securities, explained that Samsung Electronics and SK Hynix had the highest profit growth rates this year, so investors had little reason to shift funds to the KOSDAQ, and when leading semiconductor stocks undergo significant corrections, the KOSDAQ struggles to rise independently.
Seo Sang-young, managing director at Mirae Asset Securities, stated that individuals sold KOSDAQ holdings and moved into Samsung Electronics, SK Hynix, or related leverage products, weakening buying support for the KOSDAQ. He identified government KOSDAQ revitalization policies as the most important variable for recovery, citing the 2017 KOSDAQ surge following revitalization policies after the 2016 semiconductor boom. Lee Jun-young, researcher at Eugene Investment & Securities, assessed KOSDAQ activation policies, particularly the promotion and relegation system, as positive for attracting ETFs focused on quality stocks and long-term capital inflows.
FAQ
What caused the KOSPI to fall over 20% from its June peak?
Securities research center directors attributed the decline to a combination of geopolitical risks (including the Iran conflict), rising US interest rates, and supply-demand imbalances, with foreign investors selling for 22 consecutive trading days and individual investors also joining the selloff. The correction occurred despite record corporate earnings, with the KOSPI's 12-month forward P/E ratio falling to around 6.2 times.
How did analysts respond to Morgan Stanley's semiconductor peak-out theory?
Research directors largely dismissed the theory as an overreaction. Lee Jong-hyung of Kiwoom Securities stated there is no indication Samsung Electronics or SK Hynix earnings will suddenly deteriorate, while Hwang Seung-taek of Hana Securities explained that supply shortages will persist until 2028 and there is no near-term scenario where supply loosening causes stock price declines.
What role did single-stock leverage ETFs play in market volatility?
In the 1.5 months following the launch of single-stock leverage ETFs, 16 sidecar triggers and 5 circuit breaker activations occurred out of the year's total of 49 sidecars and 8 circuit breakers. Lee Jin-woo of Meritz Securities stated that leverage ETFs acted as amplifiers during high volatility periods due to supply-demand concentration in the top one or two stocks by market capitalization.
