NH Investment & Securities released a report on the 20th analyzing recent extreme volatility in Korean stocks, concluding the bull market is not over despite the KOSPI dropping 25.2% from its peak to 6820 on the 16th of this month. Analyst Na Jeong-hwan attributed the volatility to concentration in large semiconductor stocks and single-stock leveraged ETFs, but stated that signals ending bull markets — slowing profit growth and monetary tightening — have not yet appeared. The KOSPI surged 101% in the first half of this year before the sharp correction, with the VKOSPI volatility index hitting 96.9 at the end of last month, exceeding peaks during the 2008 financial crisis (89.3) and COVID-19 (69.2).
VKOSPI Surpasses 2008 Financial Crisis Peak at 96.9
The KOSPI rose 101% in the first half of this year but fell 25.2% from its peak to 6820 on the 16th of this month. The decline occurred within two weeks, compared to previous corrections that typically took months. The VKOSPI reached 96.9 at the end of last month, surpassing the 2008 financial crisis high of 89.3 and the COVID-19 peak of 69.2. Individual stock return dispersion among large-cap stocks hit 39.6 percentage points at the end of May, higher than mid-cap (32.6 percentage points) and small-cap (26.2 percentage points) stocks. Single-stock leveraged ETFs amplified volatility by mechanically buying Samsung Electronics and SK Hynix shares when prices rose and selling when prices fell.
SK Hynix Operating Margin Reaches 76.7% on AI and HBM Demand
SK Hynix briefly surpassed Samsung Electronics in market capitalization last month on a common stock basis. Na Jeong-hwan compared this to 1999 when Korea Telecom overtook Samsung Electronics, noting similarities in new technology expectations and concentration in a few large-cap stocks. However, the current semiconductor concentration is backed by profits, unlike the 1999 telecom bubble. SK Hynix's operating margin is projected at 76.7% this year, exceeding Samsung Electronics' 51.8%, driven by artificial intelligence (AI) and high-bandwidth memory (HBM) demand. Samsung Electronics and SK Hynix account for 71.2% of KOSPI net profit, higher than their combined 54.9% market capitalization weight.
NH Investment & Securities Identifies AI Infrastructure and Energy as Key Sectors
Na Jeong-hwan stated that corporate profit forecasts continue to be revised upward and monetary policy has not entered full tightening mode. He recommended AI infrastructure sectors including semiconductors and power equipment, citing pricing power and earnings visibility as supply shortages intensify with rising AI investment. Energy and securities sectors were highlighted for contributing significantly to KOSPI profit growth excluding semiconductors, but not yet reflected in market capitalization gains. Premium consumption centered on department stores and hotels was also noted, as won weakness improved domestic luxury goods price competitiveness, attracting both local consumers and foreign tourists. Foreign arrivals are expected to increase seasonally in the second half, expanding hotel and tourism consumption. Na stated that investors prefer near-term certain profits over distant uncertain returns during high volatility, making AI infrastructure, undervalued earnings stocks, and premium consumption sectors viable alternatives until profit growth slows and liquidity tightening is confirmed.
FAQ
What caused the KOSPI to drop 25.2% from its peak to 6820 on the 16th of this month?
NH Investment & Securities attributed the decline to concentration in large semiconductor stocks and single-stock leveraged ETFs amplifying volatility. The VKOSPI hit 96.9 at the end of last month, exceeding 2008 financial crisis and COVID-19 peaks, despite no clear negative catalyst for the 25.2% drop from the KOSPI peak to 6820 on the 16th of this month.
Why does NH Investment & Securities say the Korean stock bull market is not over?
Analyst Na Jeong-hwan stated on the 20th that signals ending bull markets — slowing profit growth and monetary tightening — have not yet appeared. Corporate profit forecasts continue to be revised upward, and monetary policy has not entered full tightening mode, supporting the continuation of the bull market despite recent volatility.
Which sectors did NH Investment & Securities recommend for Korean stock investors?
The report recommended AI infrastructure (semiconductors and power equipment), energy, securities, and premium consumption (department stores and hotels). These sectors offer earnings visibility and pricing power as AI investment increases, or have profit contributions not yet reflected in market capitalization gains.
