iM Securities forecasts the KOSPI will trade sideways through year-end rather than recover to previous highs within the third quarter, according to a report released by researcher Kim Jun-young. The outlook is driven by persistently elevated credit balance levels on the KOSPI despite recent index declines, raising concerns about amplified volatility. Kim noted that while the KOSDAQ saw credit balances decrease alongside the index during the correction, KOSPI credit balances remained stubbornly high throughout the decline, only beginning to fall after the rebound stalled. The current market adjustment follows a period of excessive leveraged investment in both US and Korean markets, making price corrections inevitable, the analyst stated. Kim characterized the current volatility as similar in magnitude to the correction following the March conflict, but stopped short of labeling the environment a full bear market.
KOSPI Credit Balance Persists Despite Index Decline
Korean stock market behavior diverged sharply between the KOSPI and KOSDAQ during the recent correction. The KOSDAQ index fell alongside declining credit balances as investors reduced positions, but KOSPI credit balances showed little movement even as the index dropped significantly. Credit balances only began decreasing after the rebound failed to materialize, according to Kim's analysis. "High volatility in a situation where credit balances are accumulated will likely amplify market fluctuations," Kim stated in the report. "If the index declines further, there is a possibility that credit-driven selling could emerge, which needs to be kept in mind."
The analyst noted that the current decline magnitude resembles the adjustment period following the March conflict, suggesting the market has not yet entered a full bear phase. However, the elevated credit balance creates structural vulnerability to sharper moves if selling pressure intensifies.
Analyst Forecasts Sideways Trading Through Year-End
Kim expects a consolidation period rather than a rapid return to previous highs. "Rather than the possibility of recovering previous highs, we anticipate sideways trading," Kim stated, citing historical precedents. "Both the dotcom bubble and the 2017 semiconductor cycle traded sideways for about six months after passing their peaks." The analyst added that the index is likely to spend the period through year-end exploring whether it can break through the threshold, rather than declining sharply all at once.
The semiconductor sector's long-term trajectory remains positive, but the cycle that drove the previous rally requires time to regain momentum before supporting another sustained advance, according to the report. Market participants are positioning for range-bound trading as the dominant pattern in the near term.
Big Tech Earnings Focus Shifts to Investment Sustainability
Market attention is turning to US Big Tech second-quarter earnings starting next week, but the key variable is investment sustainability rather than capital expenditure scale, according to Kim's analysis. "The point to watch in Big Tech earnings is not the CAPEX amount," Kim stated. "What the market wants to confirm this time is the earnings that support spending and the willingness to continue spending."
Kim explained that increasing CAPEX could erode operating cash flow growth, potentially reducing capacity for share buybacks and dividends. "Whether buyback and dividend capacity decreases, or whether companies begin filling funding shortfalls with debt, will be the actual issues going forward," the analyst noted.
AI investment expansion continues, but high valuations can no longer be justified by growth potential alone, according to the report. AI infrastructure is a capital-intensive, asset-heavy industry, meaning companies now face scrutiny on both growth and investment efficiency alongside profitability. "Concerns about the memory cycle ultimately lead to concerns about the profitability of Big Tech and frontier AI labs," Kim stated. "If memory prices are high, the valuations of AI-developing companies get pressured, and conversely, if AI company valuations rise, memory companies' valuations may face burden." The analyst added that the market is seeking an appropriate balance, much like the difficulty of both pickaxe sellers and mining companies commanding high valuations simultaneously.
FAQ
Why does iM Securities expect KOSPI stocks to trade sideways through year-end?
The forecast is based on persistently elevated credit balance levels on the KOSPI despite recent index declines, which creates volatility risk and limits the potential for a rapid recovery to previous highs within the third quarter. Analyst Kim Jun-young cited historical precedents including the dotcom bubble and 2017 semiconductor cycle, both of which traded sideways for approximately six months after passing their peaks.
What is the key focus for US Big Tech earnings according to the iM Securities report?
The key focus is investment sustainability rather than the absolute scale of capital expenditure (CAPEX). The market wants to confirm whether earnings can support continued spending levels and whether companies maintain the willingness to sustain investment without eroding share buyback and dividend capacity or increasing reliance on debt financing.
