Volatile Market: Lower Expectations and Prepare for Risk

The South Korean stock market faces a somber outlook for the second half of the year, following a dramatic downturn in the shares of Samsung Electronics and SK Hynix. In just two weeks, these tech giants saw their stock prices plummet by as much as 30% from their peaks. Given their substantial weight in the KOSPI index, this decline dragged the index down from over 9,000 points to below 7,500.

This market correction is largely viewed as a natural consequence of the semiconductor sector's overheated performance in the first half. The market's expectations and capital had become excessively concentrated in this single industry, making a correction almost inevitable. Compounding the issue, market volatility has intensified significantly, with even minor news triggering substantial price swings, diminishing the overall attractiveness of the South Korean market. The introduction of single-stock leveraged ETFs has further amplified this volatility, leading some foreign investors to reduce their holdings in South Korea.

Concerns are rising about whether the global rally, driven by AI infrastructure investment and the semiconductor boom, is faltering. While soaring demand for high-end semiconductors and increased investment in related companies fueled profits and stock prices, the focus is shifting from overall AI industry growth to profit distribution within the AI value chain. Semiconductor companies have captured the largest share of excess profits, but major tech firms and consumers are showing signs of resistance to escalating prices. This poses a significant challenge for the South Korean stock market, which is heavily reliant on semiconductors.

While a complete downturn for the second half is not necessarily predicted, the current dynamics suggest that the rapid gains seen in the first half may be difficult to replicate. Apple's price increases and its exploration of diversifying semiconductor suppliers to China, coupled with Meta's potential move to rent out idle resources in its AI infrastructure, are being interpreted by some as signals of a peak in AI investment. However, other analysts argue that these moves, like Meta's, could actually boost AI adoption by improving capital efficiency. Major cloud providers like Amazon, Microsoft, and Google continue to report substantial profits, and supply bottlenecks persist. The stability of Big Tech stocks in the U.S., despite semiconductor price drops, indicates that the current issue is more about profit distribution within the value chain rather than a slowdown in AI investment.

Nevertheless, these structural changes imply that the South Korean market may not achieve the same level of gains as in the first half, as the benefits of high semiconductor concentration are likely to weaken. While other export-oriented manufacturing sectors exist, their performance is partly dependent on the current high exchange rate, which burdens the domestic economy. Crucially, South Korea lacks significant AI companies poised to benefit from the redistribution of AI profits. Therefore, investors are advised to lower their profit expectations and focus on managing assets and risks in a more volatile environment, particularly by avoiding excessive leverage and short-term trading.