The KOSPI declined 34% from its June 22 peak over 25 trading days, with intraday losses reaching 36%, according to a report by IBK Securities researcher Byun Jun-ho. The decline was driven by concerns over artificial intelligence and semiconductor sectors originating from the United States and spreading to China-related negative factors. This marks only the third instance since 2000 where KOSPI fell approximately 35% within 25 trading days, with prior occurrences on October 27, 2008 during the financial crisis and March 19, 2020 during the COVID crisis — both dates marking the lowest points of bear markets.
NVIDIA-OpenAI Transaction Triggers Circular Trading Concerns
News that NVIDIA provided OpenAI with a $250 billion financial guarantee and $350 billion in hardware purchase costs fueled concerns about circular transactions. Reports of China's self-production of deep ultraviolet (DUV) lithography equipment and concerns over supply increases following Changxin Memory Technologies' listing further pressured domestic semiconductor stocks.
Current Decline Differs from 2008 and 2020 Crises
Byun noted several differences between the current situation and past crises. Unlike previous crises that involved tangible threats and immediate government policy responses such as short-selling bans and zero interest rates, the current phase reflects concerns about peak-out in AI and semiconductor industries, making policy solutions more difficult. The decline followed an unprecedented short-term surge after the dot-com bubble, potentially amplifying the rebound magnitude from short-term overheating.
Valuation Metrics Show Mixed Signals
The 12-month forward price-to-earnings ratio stands at 5.7x, below the historical lows of 6.4x in October 2008 and 8.4x in March 2020, indicating severe undervaluation relative to earnings. However, the price-to-book ratio of 1.44x remains higher than past crisis levels of 0.79x and 0.63x, making it ambiguous to characterize the current level as extreme undervaluation based on asset value.
Decline Speed Exceeds Historical Patterns
The speed of negative factor reflection is unusually fast. While it took 40 to 230 days to reach a -35% decline from peak in past instances, the current decline occurred within 25 days.
Analyst Identifies Support Level at -35% from Peak
Byun stated that the -35% level from peak has historically served as a strong support zone attracting bargain hunters even during severe crisis periods including the dot-com bubble, financial crisis, and COVID pandemic. He assessed that considering enhanced shareholder returns by companies and improved quality of semiconductor profits, the likelihood of an extreme scenario pushing the index down to -55% levels as in the past is low.
SK Hynix Earnings and July FOMC as Near-Term Catalysts
Byun identified SK Hynix's earnings results and the July Federal Open Market Committee (FOMC) outcome as near-term turning points. He noted that SK Hynix stock has plunged approximately 50% from its peak, and the market may react more strongly to positive factors such as future guidance or shareholder return policies rather than the earnings figures themselves. While the FOMC is expected to maintain a hawkish hold, it could serve as an opportunity to resolve uncertainty since the market has already priced in this scenario.
FAQ
Q: How does the current KOSPI decline compare to past market crashes?
A: The KOSPI's 34% decline over 25 trading days represents only the third such occurrence since 2000, with previous instances on October 27, 2008 and March 19, 2020 marking the lowest points of bear markets during the financial crisis and COVID pandemic.
Q: What triggered the recent decline in Korean semiconductor stocks?
A: The decline was triggered by NVIDIA's $250 billion financial guarantee and $350 billion hardware purchase arrangement with OpenAI raising circular trading concerns, combined with reports of China's self-production of DUV lithography equipment and supply increase concerns following Changxin Memory Technologies' listing.
