[MarketING] Asian Stock Markets Synchronize Weakness... KOSPI Retreats to 2550 Level

KOSPI Falls for Third Day... Drops to 2550 Level
KOSDAQ Falls Over 2%, Drops Below 880 Level

Amid concerns over additional US interest rate hikes, Asian stock markets broadly showed weakness, leading to declines in both the KOSPI and KOSDAQ. The KOSPI fell to the 2550 level, while the KOSDAQ dropped to the 870 level. In particular, the poor construction quality by GS Geonseol dampened investor sentiment in construction stocks, resulting in a sluggish performance.

KOSPI Falls for Third Consecutive Day, Dropping to 2550 Level... KOSDAQ Declines Over 2%

On the 6th, the KOSPI closed at 2556.29, down 22.71 points (0.88%) from the previous day. The KOSDAQ ended the session at 870.53, down 20.65 points (2.32%). The KOSPI fell below the 2560 level for the third consecutive day, while the KOSDAQ, turning bearish after five days, slipped to the 870 level.

[Image source=Yonhap News]

Foreign and institutional selling pressure dragged the indices down. On that day, foreigners net sold 166.5 billion KRW in the KOSPI market and 114.9 billion KRW in the KOSDAQ market. Institutions also sold 423.2 billion KRW and 350.1 billion KRW in the two markets, respectively. Although individual investors alone net bought 551.2 billion KRW and 458.7 billion KRW, it was insufficient to prevent the index decline.

Seokhwan Kim, a researcher at Mirae Asset Securities, analyzed, "The domestic stock market declined as the hawkish minutes of the US Federal Open Market Committee (FOMC) led to rising market interest rates and a stronger dollar, which acted as burdens, causing the Asian stock markets to broadly underperform in a synchronized manner. Additionally, a wait-and-see stance ahead of Samsung Electronics' preliminary earnings announcement also played a role, and foreigners expanded net selling in both spot and futures markets." On the same day, the won-dollar exchange rate in the Seoul foreign exchange market closed at 1300.9 won, up 2.3 won from the previous day.

Construction stocks notably underperformed. GS Geonseol plunged 19% due to the impact of poor construction quality, dampening investor sentiment across the sector. The KOSPI construction industry index fell 4.74% that day. GS Geonseol closed at 14,520 won, down 19.47% from the previous day. During the session, it dropped to 14,440 won, marking a 52-week low. HDC Hyundai Development Company fell 4.28%, Kumho Construction 4.13%, Daewoo Construction 3.09%, Dongbu Construction 5.29%, and Shinsegae Construction 2.70%. Kumho Construction and Shinsegae Construction also recorded 52-week lows during the session.

Researcher Kim explained, "Investor sentiment was dampened as anxiety accumulated across the industry due to the decision to reconstruct following GS Geonseol's poor construction."

GS Geonseol Faces Inevitable Short-Term Uncertainty

The Ministry of Land, Infrastructure and Transport's announcement of poor construction results and the decision for full reconstruction of apartments in Incheon Geomdan New Town led to a sharp drop in GS Geonseol's stock price.

The day before, the Ministry of Land, Infrastructure and Transport's Construction Accident Investigation Committee announced the investigation results and special inspection findings related to the collapse accident in the underground parking lot of an apartment in Incheon Geomdan that occurred at the end of April. The accident was found to be due to comprehensive poor quality at all stages, from design to supervision and construction. Following the announcement, GS Geonseol issued an apology and decided to reconstruct the entire apartment complex.

Securities firms forecast that short-term uncertainty due to this accident is inevitable. Jaeseung Baek, a researcher at Samsung Securities, stated, "Considering similar cases involving HDC Hyundai Development Company, we have lowered GS Geonseol's operating profit estimate for this year by 39%, reflecting a provision of 150 billion KRW and increased costs for safety reinforcement, and accordingly lowered the target stock price by 27% to 22,000 won. We should consider that uncertainty may persist at least until the Ministry of Land, Infrastructure and Transport announces the overall site investigation results and the disposition results of this accident in August."

Korea Investment & Securities downgraded GS Geonseol's investment opinion from 'Buy' to 'Neutral.' Kyungtae Kang, a researcher at Korea Investment & Securities, explained, "This is because we lowered the operating profit estimate for this year by 53.0%, reflecting the reconstruction loss amount due to the full reconstruction decision in Incheon Geomdan New Town. The problem is that additional intangible and tangible losses may arise, such as delay penalties due to prolonged demolition periods, compensation payments including interest costs to LH, which is responsible for financing the existing project, and a decrease in orders for maintenance projects due to brand awareness decline. It is also uncertain whether GS Geonseol's dividend policy, which has maintained a payout ratio of around 30%, will continue."