Korean stocks diverged sharply in the week ending the 7th as supply-demand distortions from semiconductor leverage products eased, with KOSPI falling 5.10% to 6258.77 while KOSDAQ surged 10.98% to 798.81, according to Korea Exchange data released the 9th. The divergence followed regulatory changes that raised base deposits for single-stock leverage products from 10 million won to 30 million won starting the 31st of last month, reducing mechanical selling pressure on Samsung Electronics and SK Hynix. Securities analysts expect market rotation to sectors undervalued relative to earnings as credit liquidation progresses and leverage ETF trading volumes decline from prior peaks.
KOSPI Falls 5.10% While KOSDAQ Surges 10.98% in Week Ending the 7th
KOSPI dropped 5.10% to close at 6258.77 in the week ending the 7th, while KOSDAQ rose 10.98% to 798.81 during the same period, according to Korea Exchange. KOSPI had recovered to the 6000 level after falling to the mid-5000s last month on value-buying inflows, but surrendered most gains as semiconductor stocks weakened again in the latter half of the week. Noh Dong-gil, researcher at Shinhan Investment & Securities, stated that the semiconductor sector's weekly return was -12.2%, noting that "while relative returns improved for most sectors excluding semiconductors, volatility centered on Samsung Electronics and SK Hynix has not completely subsided."
KOSDAQ triggered buy-side circuit breakers for three consecutive trading days during its strong rebound. Na Jung-hwan, researcher at NH Investment & Securities, attributed the KOSDAQ strength to "supply expansion following the decline in single-stock leverage trading."
Leverage ETF Regulation Reduces Samsung and SK Hynix Market Cap Concentration
Samsung Electronics and SK Hynix's combined market capitalization share within the semiconductor sector fell to 46.3% as of the 6th from a peak of 58.9% on June 25 following the introduction of single-stock leverage ETFs, according to Daishin Securities. Average daily trading volume of leverage ETFs based on these two stocks plunged to 600 billion won as of the 6th from 7.5 trillion won before the base deposit increase. Credit margin balance decreased to 27.6 trillion won as of the 5th from 37.5 trillion won on June 24, indicating reduced potential for forced selling and mechanical sell pressure going forward.
Na stated that "the combined net assets of 16 domestic and foreign index-tracking leverage ETFs have declined to 7.6 trillion won, lowering the possibility of volatility expansion from leverage products." VKOSPI declined to 77.2 points but requires more time for full normalization. Outstanding put options on US memory semiconductor stocks including SanDisk, Western Digital, and SK Hynix ADR remain a factor that could amplify downside during sharp declines.
Earnings Consensus Rises Beyond Semiconductor Sector
KOSPI controlling shareholder net profit consensus for this year stands at 791.9 trillion won, up from 757.6 trillion won at the time of SK Hynix's earnings announcement, according to NH Investment & Securities. Net profit forecasts excluding Samsung Electronics and SK Hynix also increased to 222.3 trillion won from 219.2 trillion won the previous week.
Daishin Securities noted that export growth excluding semiconductors expanded from 0.3% year-over-year in the fourth quarter of last year to 12.1% in the first quarter of this year and 20.3% in the second quarter, indicating strengthening export and earnings momentum for non-semiconductor sectors. The firm forecasts potential simultaneous gains as semiconductors recover their leadership position alongside undervalued sectors such as IT hardware and retail/distribution.
US July CPI Data Scheduled for the 12th Remains Key Variable
The US July CPI announcement scheduled for the 12th represents the week's biggest watershed, with markets expecting headline CPI at 3.5% year-over-year and core CPI at 2.5%. The key question is whether energy price increases during recent US-Iran negotiations have spread to core and services inflation. If inflation pressure proves stronger than expected, the possibility of additional US tightening could resurface, pushing up Treasury yields and the dollar to burden Korean stocks. Conversely, if inflation stabilizes within expected ranges, focus would shift to supply normalization and earnings improvement, likely continuing the market rotation trend.
FAQ
What caused KOSPI and KOSDAQ to move in opposite directions in the week ending the 7th?
KOSPI fell 5.10% to 6258.77 while KOSDAQ surged 10.98% to 798.81 in the week ending the 7th, according to Korea Exchange data released the 9th. The divergence resulted from regulatory changes that raised base deposits for single-stock leverage products from 10 million won to 30 million won starting the 31st of last month, reducing mechanical selling pressure on semiconductor stocks like Samsung Electronics and SK Hynix while shifting capital flows to KOSDAQ.
How much did Samsung Electronics and SK Hynix's market share within semiconductors decline?
Samsung Electronics and SK Hynix's combined market capitalization share within the semiconductor sector decreased to 46.3% as of the 6th from 58.9% on June 25, according to Daishin Securities. Average daily trading volume of leverage ETFs based on these two stocks fell to 600 billion won as of the 6th from 7.5 trillion won before the base deposit increase.
When is the US July CPI data scheduled for release?
The US July CPI is scheduled for announcement on the 12th, with markets expecting headline CPI at 3.5% year-over-year and core CPI at 2.5%. The data represents a key variable for Korean stock market direction, as stronger-than-expected inflation could revive US tightening concerns while in-line results would support continued market rotation trends.
