The KOSPI's seven-session losing streak has gone too far, a brokerage said, pointing to solid earnings fundamentals at Samsung Electronics and SK hynix that could set up a W-shaped rebound after the market finds a bottom.
KB Securities said in a report on the 16th that the recent plunge in shares of Samsung Electronics and SK hynix amounted to an excessive correction. "The recent slide in Samsung Electronics and SK hynix shares appears to be an excessive correction driven by a supply-demand imbalance in the Korean market and weakened investor sentiment, rather than any damage to fundamentals," the report said. "Earnings forecasts for Samsung Electronics and SK hynix are in fact being revised upward."
Korean stocks have fallen 18.8% this month, a steeper drop than in Japan, down 3.5%, or Taiwan, down 2.0%. Based on final earnings through the second quarter of this year, the KOSPI's price-to-earnings ratio has fallen to about 8 times. That is comparable to levels seen during macroeconomic crises such as the 2003 credit card debt crisis, the 2008 global financial crisis and the 2020 COVID-19 pandemic.
The day before, the KOSPI closed at 5,554.22, down 454.59 points or 7.57%, in what traders dubbed a "Black Thursday." The close fell below the late-July low of 5,593.56 and marked the weakest level since the index ended at 5,494.78 on April 7. The KOSPI has now declined for seven straight sessions, the longest such run since Sept. 3-11, 2024, two years and one month ago. Samsung Electronics finished at 210,000 won, down 9.48%, while SK hynix tumbled 11.06% to 1.262 million won.
Earnings forecasts for both chipmakers have been rising. Taiwan's TSMC, which reported third-quarter results the previous day, said it saw no signs of slowing demand for artificial intelligence chips, and Dutch semiconductor equipment maker ASML said in its recent earnings announcement that customers' medium- to long-term demand outlook was improving. Market researcher TrendForce projects DRAM prices will post a double-digit percentage gain in the fourth quarter. Against that backdrop, the recent plunge in Samsung Electronics and SK hynix reflects risk aversion that has been excessively priced into the shares, the brokerage said.
"The recent KOSPI plunge is the result of excessive concerns about an economic downturn and falling profits being priced in ahead of time," said Kim Dong-won, an analyst at KB Securities. "The move into valuations comparable to a financial crisis can be read as the process of forming a second bottom for a W-shaped rebound, following the low of July 29."
