The KOSPI Korean stock index has experienced sharp volatility after falling below the 7000 level, with securities firms attributing the swings to the outsized influence of semiconductor stocks Samsung Electronics and SK Hynix, which account for 54% of the index's market capitalization. The index rose 101% in the first half of the year before declining over 20% from its June peak in just two weeks, a pattern analysts describe as unprecedented concentration-driven movement. NH Investment & Securities characterized the recent market environment as displaying concentration and volatility not experienced in the past, noting the index doubling in six months represents a highly unusual phenomenon. Securities analysts identify multiple contributing factors including skepticism about semiconductor industry conditions, extreme concentration in supply-demand dynamics, amplification effects from single-stock leveraged ETFs, renewed geopolitical risks, and hawkish stances from overseas central banks and the Bank of Korea's rate hiking trajectory.
Samsung Electronics and SK Hynix Account for 54% of KOSPI Market Cap
The two semiconductor giants hold a 54% weight in KOSPI market capitalization, a concentration level securities firms identify as the central factor in recent index volatility. NH Investment & Securities noted that unlike the 2008 financial crisis and 2020 COVID-19 periods when 20% declines occurred, the current drop lacks a clear singular cause, making it difficult to pinpoint specific drivers of the price movement. The firm observed that repeated sharp price swings without obvious reasons further weaken investor sentiment. The concentration effect is amplified by supply-demand dynamics heavily tilted toward these two stocks, with single-stock leveraged ETF flows creating additional amplification effects according to the securities analysis.
NH Investment & Securities Analyst Identifies Profit-Based Concentration
Na Jeong-hwan, researcher at NH Investment & Securities, stated that the current concentration differs from past peaks that lacked earnings support, emphasizing that today's concentration is based on actual profits rather than expectations. "The market cap weight is accompanied by an even larger profit weight, and valuations are not at overheated levels," Na said, adding that "during the second-quarter earnings season, if major companies report strong results, expectations for next quarter's performance expand, creating a structure where profits support the concentration in real-time." The firm's analysis indicates that the profit contribution from Samsung Electronics and SK Hynix exceeds their market cap proportion, with valuations remaining below bubble territory.
Daol Investment & Securities Notes Historic Low Valuation Levels
Daol Investment & Securities assessed that current price levels relative to earnings indicate the market has reached territory where the decline appears excessive. As of the most recent weekend, the forward price-to-earnings ratios (PER) for SK Hynix, Samsung Electronics, and the KOSPI overall stand at levels not experienced even during the financial crisis or COVID-19 situations. Cho Byung-hyun, researcher at Daol Investment & Securities, stated: "At this point, we cannot ignore concerns about the sustainability of the semiconductor sector, and it is difficult to accurately assess or predict this." Cho added that "nevertheless, there is a need to respond to the situation by monitoring the earnings announcements of US Big Tech and hyperscalers scheduled for the end of this month." The firm projected that while second-half profit trajectory may not match first-half levels, an upward trend should continue considering strong export performance, and characterized current valuations as excessively low even accounting for potential profit path deterioration.
FAQ
What percentage of KOSPI market cap do Samsung Electronics and SK Hynix represent?
Samsung Electronics and SK Hynix account for 54% of the KOSPI index's market capitalization, according to securities firm analysis cited in the article.
How much did KOSPI rise in the first half of the year?
The KOSPI index rose 101% during the first half of the year, representing a doubling of the index in six months, which NH Investment & Securities characterized as a highly unusual phenomenon.
What did NH Investment & Securities say about the current market concentration?
NH Investment & Securities researcher Na Jeong-hwan stated that unlike past peaks without earnings support, the current concentration is based on actual profits rather than expectations, with the profit weight of major companies exceeding their market cap proportion and valuations not at overheated levels.
