KOSPI Volatility Continues Amid Geopolitical Risks and Interest Rate Uncertainty

On June 12, the KOSPI and KOSDAQ indices are displayed on the board at Hana Bank's dealing room in Jung-gu, Seoul. The KOSPI closed at 8,123.62, up 359.67 points (4.63%) from the previous day, while the KOSDAQ rose 32.12 points (3.22%) to close at 1,029.05. [Photo: Yonhap News]

The South Korean stock market continues to experience high volatility, driven by profit-taking in the semiconductor sector, geopolitical risks, and uncertainty surrounding interest rates. Market observers expect a cautious sentiment to prevail ahead of the upcoming meetings of the U.S. Federal Open Market Committee (FOMC) and the Bank of Japan (BOJ). However, the ongoing investment cycle in artificial intelligence (AI) and improving semiconductor performance suggest a potential return to a performance-driven market after short-term fluctuations.

According to the Korea Exchange, the KOSPI index closed at 8,123.62 on June 12, up 359.67 points (4.63%) from the previous trading day. Over the week from June 8 to 12, the KOSPI fell by 0.45%, while the KOSDAQ rose by 2.65%. The KOSPI showed significant volatility, plummeting 8.29% on June 8 before rebounding by 8.18% the following day, recovering to above 8,400 during intraday trading on June 12 after dipping below 7,400 on June 8.

This week, the domestic market has seen profit-taking primarily in large-cap semiconductor stocks, resulting in heightened volatility. Geopolitical tensions involving the U.S. and Iran, concerns over rising global interest rates, and debates over a slowdown in AI investments have collectively dampened investor sentiment. Conversely, the KOSDAQ market, which had experienced significant declines, has shown relative resilience, with a rotation of investments focusing on semiconductor materials, components, and equipment, as well as some domestic sectors.

Market analysts interpret the current correction as a process of easing the semiconductor concentration that has persisted since May, rather than a direct response to geopolitical risks. Despite headline pressures from the U.S. Consumer Price Index (CPI) and Producer Price Index (PPI), core inflation has remained largely in line with expectations. Concerns over a slowdown in AI investments are viewed as temporary noise caused by supply constraints and project-specific bottlenecks. Rising memory prices and strong semiconductor exports are also cited as factors supporting expectations for improved performance.

Lee Jae-won, a researcher at Yuanta Securities, stated, "While the justification for this correction includes war, oil prices, and interest rates, the essence lies in the resolution of excessive concentration since May. Concerns about the AI investment cycle should not be seen as a signal of trend deterioration, as the upward revisions in earnings per share (EPS) driven by semiconductor exports support the lower end of the index." He added, "We are currently in a phase where the AI supercycle and improvements in semiconductor EPS are maintained, making this decline more indicative of a compression response following overheating rather than a signal of economic recession."

Next week, global monetary policy events are expected to be key variables influencing market direction. The G7 summit will take place from June 15, followed by the BOJ's monetary policy meeting on June 16. On June 18, the FOMC and the Bank of England (BOE) will hold their monetary policy meetings simultaneously.

Particularly, the market is focused on the FOMC results and press conference led by Federal Reserve Chair Kevin Warsh. While the likelihood of a pause in interest rates is high, recent robust employment data and inflation pressures raise the possibility of a more hawkish stance. Analysts suggest that volatility in global risk assets could increase depending on the tone of Warsh's remarks and any changes to the dot plot.

Throughout the week, global events related to AI will also attract attention. Major tech companies are expected to unveil their AI investment plans and capital expenditure strategies at events such as the Databricks AI Summit, Google Cloud Summit, and VivaTech, which could influence investment sentiment across the entire AI value chain. Additionally, the U.S. market will be closed on June 19, leading to an earlier expiration date for futures and options on June 18, which could further heighten short-term volatility.

While the securities industry anticipates continued volatility in the short term, the medium to long-term outlook remains positive. There is ongoing interest in sectors with solid performance momentum, such as semiconductors, semiconductor materials, and financial and retail industries. At the same time, there are discussions about the potential for a rotation of investments into sectors that have been overlooked, such as secondary batteries and premium consumer goods.

Jo Byeong-hyeon, a researcher at Daol Investment & Securities, remarked, "Although uncertainties surrounding inflation, interest rates, and monetary policy are overlapping, if oil prices stabilize, there remains a possibility that U.S. inflation will trend downward in the second half of the year. It is essential to confirm the policy direction of the BOJ and the Fed next week, but if it is not a significantly stronger inflation response than before, the positive fundamental outlook for the second half should be maintained."

* This article has been translated by AI.