[MarketING] Expectations Turn to Disappointment... KOSPI Retreats to 2420 Level

KOSPI Declines for Second Day
Foreigners Switch to 'Selling'
Market Volatility Expected to Increase

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] The KOSPI has fallen to the 2420 level. Expectations for an improvement in the semiconductor industry due to Samsung Electronics' production cuts had been driving the KOSPI's rise, but as those expectations turned into disappointment, profit-taking sell-offs poured in. This week, as the market verifies the factors that have driven the upward trend, stock price volatility is expected to increase.

KOSPI Weakens for Second Day... Samsung Electronics Down 3%

On the 31st, the KOSPI closed at 2425.08, down 25.39 points (1.04%) from the previous day. The KOSDAQ ended the day at 740.49, up 1.87 points (0.25%).

Samsung Electronics' sharp decline pulled the stock prices down. Samsung Electronics dropped 3.63%, falling to the 61,000 KRW range. The company did not mention any artificial production cuts, leading to disappointment and a flood of profit-taking sales. In a conference call following the Q4 earnings announcement last year, Samsung Electronics stated, "This year's facility investment will be at a similar level to the previous year," and added, "We will continue infrastructure investment to respond to mid- to long-term demand and secure essential clean rooms."

Kim Seokhwan, a researcher at Mirae Asset Securities, said, "Ahead of the U.S. Federal Open Market Committee (FOMC) meeting, caution increased, and foreign investors sold shares following Samsung Electronics' earnings announcement, causing a sharp drop in stock prices and putting pressure on the KOSPI." He added, "Samsung Electronics announced there would be no artificial production cuts or investment reductions, which reduced expectations for a rebound in semiconductor prices, resulting in a decline of over 3%."

Due to disappointment, foreign investors switched to a selling trend for the first time in 13 trading days. On this day, foreign investors net sold 486.5 billion KRW in the securities market, with Samsung Electronics alone accounting for 421.6 billion KRW in sales.

Samsung Electronics hinted at the possibility of natural production cuts through enhanced maintenance of production lines and equipment relocation, but the market's disappointment, which had expected artificial production cuts, was inevitable. Lee Kyungmin, a researcher at Daishin Securities, said, "The upcoming SK Hynix earnings, business plans, and earnings guidance to be released on the 1st of next month are also likely to fall short of market expectations regarding the timing of the industry and earnings bottoming out." He added, "Since the DRAM Exchange Index (DXI) has fallen 2.57% since the beginning of the year, it suggests that the semiconductor industry in Q1 may be weaker than expected, weakening expectations for recovery in Q2."

Contracted Investor Sentiment... Heightened Caution Ahead of FOMC

Investor sentiment is expected to contract due to disappointment over Samsung Electronics' production cut expectations, increasing stock market volatility. In particular, caution is expected to intensify ahead of the two-day U.S. FOMC meeting starting today.

Researcher Lee said, "During the process of verifying the expectations that have driven the stock market rebound, if there is no surprise momentum or if minor disappointments arise, the global stock markets and the KOSPI at their current levels will be significantly shaken," adding, "It is a time to be cautious of downside risks."

Stock prices are expected to weaken after the February FOMC. Researcher Lee analyzed, "Since the January stock market overshot fundamentals in the short term, following the release of major domestic and international economic indicators in January, Samsung Electronics and SK Hynix earnings announcements, and the February FOMC, the downward trend is expected to resume." He added, "Similar to after the December FOMC, the market will move past rebounds driven by expectations and enter a phase of price adjustments to narrow the gap with fundamentals and relieve valuation pressures."