[Center Director's Urgent Diagnosis] KOSPI Support Level at 2250... Must Respond with Earnings and High Dividends

KOSPI Short-Term Bottom Expected at 2250-2350
Possible Short-Term Rebound by Year-End
Impact of Trump Risk and Samsung Electronics' Weakness

On the 13th, the KOSPI fell to the 2410 level just one day after dropping below 2500. The KOSDAQ slid down to the 700 level. The index, which was poised to break through the 2900 level due to the government's 'Corporate Value-Up Program,' failed to recover even the 2600 level after the market crash in early August. It is currently barely holding the 2400 level. Leading domestic research center heads forecasted the KOSPI bottom to be around 2300 by the end of the year. Opinions on the timing of the KOSPI rebound varied from the end of this year to the second quarter of next year, with some expecting a technical rebound if the policy risks related to Donald Trump ease. Experts advised against indiscriminate bottom-fishing before the market supply and demand stabilize, recommending instead to selectively invest in companies with strong earnings and to manage risk through appropriate diversification of portfolios.

Short-Term Rebound Possible by Year-End... Trump Risk and Samsung Electronics Earnings Are Key

On the 18th, Asia Economy conducted written interviews with domestic securities firms including Korea Investment & Securities, NH Investment & Securities, Mirae Asset Securities, Daishin Securities, KB Securities, Toss Securities, Hyundai Motor Securities, IBK Investment & Securities, and IM Securities. They predicted the KOSPI bottom to be between 2250 and 2350.

Oh Tae-dong, head of NH Investment & Securities Research Center, said, "Rather than a Santa rally at year-end, a pause in the market is expected," adding, "With the pressure from rising U.S. market interest rates increasing discount rates, valuation pressure due to the Federal Reserve's potential adjustment in the pace of rate cuts, and coexistence of expectations and concerns about Trump's policies, the U.S. stock market faces high profit-taking pressure. Meanwhile, the KOSPI, which had already declined, is expected to show limited movement with both bargain buying opportunities and lack of upward momentum."

Kim Young-il, head of Daishin Securities Research Center, stated, "The market has preemptively priced in the worst possible conditions, and investment sentiment and supply-demand are extremely contracted, making it difficult to predict the exact bottom of the index. The possibility of undershooting due to market concentration should also be considered. However, considering the valuation levels reflecting the realization of various market concerns and extreme fear of economic shocks, levels below 2400 are seen as a deep value zone that preempts past crisis phases."

The KOSPI, which started at 2669.81 in early January, climbed to 2896.43 on July 11, nearing the 2900 level, powered by the Value-Up Program. However, during the week of the 11th to 15th, the KOSPI plunged 144.29 points (5.63%) to close at 2416.86. Experts analyzed that a rebound within this year is possible given the rapid decline in a short period.

Yoo Jong-woo, head of Korea Investment & Securities Research Center, predicted, "A short-term rebound is possible in December," while Kim Young-il expected a rebound in late November. Oh Tae-dong anticipated, "The stock market's sharp drop in a short period and the recent slowdown in the Trump trade in the U.S. suggest a technical rebound is possible."

There is also a forecast that if earnings and supply-demand instability calm down and political anxiety stemming from Trump eases, the market could recover the sharp declines by year-end. Byun Jun-ho, head of IBK Investment & Securities Investment Analysis Department, said, "From the second quarter of next year, as recovery expectations for 2026 begin to be reflected, the bottom is expected to be confirmed. This period will see extreme valuation undervaluation and excessive declines, a peak-out in the strong dollar, and a tone-down in Trump's expected hardline policies after taking office."

Lee Woong-chan, researcher at IM Securities, also projected a rebound after the market perceives that the Trump trade has been sufficiently priced in the short term. He said, "As the new U.S. administration appointments are confirmed, the continuation of Trump trading will be decided," adding, "The KOSPI may not rise but will likely hold the lower bound of the trading range." However, he noted, "It is still difficult to mention a meaningful rebound. The market will rebound only after the first half of next year when a clear blueprint on tariffs is confirmed and the shock is seen to be less severe than initially feared. During the first half, the U.S. needs to maintain interest rates, resolve debt issues, and address Nasdaq overvaluation concerns."

Lee Young-gon, head of Toss Securities Research Center, said, "Concerns about the weakening competitiveness of leading domestic companies and U.S. protectionist policies negatively affected the market." He added, "The short-term decline was excessive, making valuations attractive at the current index level. However, if concerns grow that leading domestic companies are falling behind global competitors and investment sentiment does not recover, a meaningful rebound may be difficult. Confirmation that corporate earnings and global competitiveness have not been impaired is necessary."

Semiconductor and Secondary Battery Stocks Plunge Due to Trump Policy Changes... Won Weakness Also Spurs Foreign Investor Outflow

The domestic stock market's weakness is the result of various factors including tariffs and policy risks following Trump's election, foreign investor outflows, and Samsung Electronics' sluggish performance. After President Trump's election, semiconductor and secondary battery stocks plunged amid concerns about export uncertainties due to changes in U.S. policies. Related domestic stocks showed unstable movements following Trump's remarks.

Park Hee-chan, head of Mirae Asset Securities Research Center, explained, "Samsung Electronics' sluggishness and declining credibility, worsening earnings outlook, and uncertainty over Trump's second-term policies caused market weakness. Especially, concerns over aggressive tariff hikes and trade disputes posed a burden to Korea, which exports many manufactured goods to the U.S."

Kim Young-il noted, "The KOSPI's annual earnings forecasts for 2024 and 2025 were downgraded due to third-quarter earnings weakness. Combined with bond yields and dollar rises following Trump's election, trade contraction concerns, and semiconductor plunges, the market is showing a differentiated weakness compared to global markets. Particularly, anxiety over Samsung Electronics' business conditions and earnings intensified, leading to concentrated foreign selling."

Samsung Electronics, which faced strong foreign selling, fell to the '40,000 won electronics' level on the 14th for the first time in 4 years and 5 months but barely recovered to the 50,000 won range the next day. Foreign investors continued net selling Samsung Electronics for 12 consecutive trading days from the 30th of last month to the 14th of this month. As the stock price remained stuck in a slump, Samsung Electronics unveiled a large-scale share buyback plan. On the 15th, it announced plans to repurchase up to 10 trillion won of treasury shares within the next year to enhance shareholder value.

Kim Dong-won, head of KB Securities Research Center, said, "Of the 18.9 trillion won net foreign selling in the second half, Samsung Electronics accounted for 18 trillion won." He added, "Technically, it looks like an overreaction, but the serious issue of stagnant sales for 11 years clouds the outlook. From a supply-demand perspective, shocks may repeat several times before support measures are announced."

Oh Tae-dong said, "The recent weakness in the domestic stock market is mainly due to foreign investor outflows caused by tariffs and policy risks following Trump's election," adding, "Also, the won-dollar exchange rate exceeded 1400 won amid a strong dollar and persistent won weakness, which contributed to foreign investors exiting the Korean stock market."

Lee Woong-chan said, "The KOSPI's failure to hold the 2400 level is mainly due to Trump's election, which is not good for Korea. The Inflation Reduction Act (IRA) cutbacks and tariff imposition possibilities are the biggest negative factors," adding, "Subsidy reductions caused the secondary battery plunge, and tariff possibilities are reflected in the weakness of export stocks like automobiles and the won. The prolonged Samsung Electronics decline throughout this year also had a significant impact."

Experts agree that Samsung Electronics' earnings must support the market to calm foreign selling. Oh Tae-dong said, "During periods of growing doubts about semiconductor competitiveness, foreign investor supply-demand tends to coincide with or lead Samsung Electronics' earnings forecasts," adding, "When AI industry momentum resurfaces and Samsung Electronics' earnings outlook improves, foreign net buying is likely to increase."

However, even if Samsung Electronics' stock price recovers, it seems difficult for it to regain its position as the market leader. Kim Dong-won said, "Samsung Electronics is currently oversold, and its price rebound may conclude the overall KOSPI decline," but added, "I do not think Samsung Electronics and the semiconductor sector will return as market leaders."

Respond Focused on High Dividend and Strong Earnings Companies... Portfolio Diversification Needed

The securities industry advises focusing on sectors with solid earnings that may benefit from the Trump trade and high dividends. Park Hee-chan said, "Basically, investment should focus on companies with strong earnings. Currently, power equipment, defense, shipbuilding, and healthcare are representative sectors. SK Hynix is positive among semiconductors." No Geun-chang, head of Hyundai Motor Securities Research Center, said, "It is worth approaching sectors like semiconductors, automobiles, shipbuilding, and defense with buying."

Kim Dong-won also said, "Until supply-demand returns, short-term preference for high dividends is advisable, and after the earnings-driven market phase ends, a stock bubble market is expected to emerge," predicting, "It will be similar to the individual stock frenzy in mid-2021." He also advised paying attention to autonomous driving, space defense, bio, and nuclear power sectors, where AI regulation easing is anticipated.

Lee Woong-chan said, "It is necessary to also consider media, entertainment, gaming, healthcare sectors that can avoid U.S. tariffs or are related to China's stimulus measures," but cautioned, "Additional buying in defense and shipbuilding, which are Trump trade beneficiaries and have recently surged, should be approached carefully."

There is advice that buying solely because the market has plunged is risky and that diversification is important. Park Hee-chan said, "Buying at the bottom just because prices have dropped a lot seems risky. Even if buying, investment should be in companies with good earnings," adding, "Rather than increasing domestic exposure only, overseas diversification including the U.S. and India should be considered."

Lee Young-gon also advised, "Selective approach to stocks with valuation appeal is necessary," and "If the portfolio is concentrated only in domestic stocks, diversification strategies including overseas assets are needed."

Even if the market rebounds in the short term, there is skepticism about a sustained uptrend. Lee Woong-chan said, "If the index falls further, phased buying will at least prevent losses. Especially if there have been significant gains in overseas stocks, realizing profits and benefiting from exchange rates while paying attention to domestic investment is worthwhile," but added, "However, it is not a sustained rise, so aiming for a rebound is recommended."

Byun Jun-ho, head of Investment Strategy Department, said, "Entering the short-term trading buy zone, adopting a short-term bottom-fishing strategy is advisable. Meaningful index rises are expected after the second half of next year, and a conservative stance should be maintained from a mid-term perspective for now."