Yuanta Securities analyst Heo Jae-hwan stated in a July 27 report that downward pressure on the KOSPI will gradually ease after the index fell over 28% in the recent one-month period, marking its largest decline since the COVID-19 pandemic. The analyst noted the recent adjustment was excessive in the short term, excluding financial crisis scenarios. However, Heo assessed that a V-shaped rebound similar to the COVID-19 recovery is unlikely, citing interest rate burdens, Big Tech investment slowdown concerns, and leverage ETF impacts as factors limiting recovery speed. The KOSPI dropped 28.5% from its intraday high of 9114 points on June 21 to 6516 points on July 20, representing the sharpest decline since COVID-19 (-36%), the 2022 US rate hike phase (-31%), and the 2008 global financial crisis (-54%).
KOSPI Records 28.5% Decline from June 21 to July 20
The KOSPI fell 28.5% from its June 21 intraday high of 9114 points to 6516 points on July 20. SK Hynix shares dropped 39.6% from their closing high. Heo Jae-hwan evaluated that the recent adjustment resembles the short-term plunge during COVID-19 more than the prolonged 2022 bear market. The decline represents the largest drop since the COVID-19 pandemic (-36%), the 2022 US rate hike period (-31%), and the 2008 global financial crisis (-54%).
Yuanta Securities Identifies Three Factors Limiting Recovery Speed
Heo Jae-hwan cited three factors constraining recovery pace. First, the monetary policy environment differs significantly from COVID-19, when global monetary easing occurred, whereas expectations for additional Bank of Korea rate hikes are currently high. Second, US Big Tech profitability slowdown poses a burden — Alphabet reported favorable earnings but operating margin fell from Q1 36.6% to Q2 34.2%, and free cash flow turned negative for the first time. Third, single-stock leverage ETF impact persists — while Samsung Electronics leverage ETF trading volume declined to pre-launch levels, SK Hynix leverage ETF trading volume still exceeds underlying asset trading volume.
KOSPI Ex-Semiconductors Valuation Falls to Lowest Since April Last Year
Valuation burden has eased considerably. The 12-month forward price-to-earnings ratio (PER) for KOSPI excluding semiconductors fell to 7-8x, the lowest level since April last year. Heo Jae-hwan stated that the recovery process will not be limited to semiconductors alone, recommending attention to machinery, shipbuilding, and construction sectors in addition to semiconductors and IT hardware, which experienced large declines from their highs.
FAQ
What caused the KOSPI to fall 28.5% from June 21 to July 20?
Yuanta Securities analyst Heo Jae-hwan stated in a July 27 report that the recent adjustment was excessive in the short term, excluding financial crisis scenarios. The KOSPI dropped from 9114 points on June 21 to 6516 points on July 20, marking the largest decline since the COVID-19 pandemic.
Why does Yuanta Securities assess that a V-shaped rebound is unlikely for Korean stocks?
Heo Jae-hwan cited three limiting factors: interest rate burdens with expectations for additional Bank of Korea rate hikes, Big Tech investment slowdown concerns as Alphabet's operating margin fell from Q1 36.6% to Q2 34.2%, and ongoing single-stock leverage ETF impact as SK Hynix leverage ETF trading volume still exceeds underlying asset trading volume.
