The South Korean stock market has once again collapsed, marking the sixth major drop this month. Concerns over China's semiconductor industry and weakness in U.S. semiconductor stocks contributed to a more than 10% plunge in the KOSPI, while the KOSDAQ index fell over 8%. Analysts suggest that the market may have entered an excessively undervalued phase, and upcoming earnings reports from major tech companies could be pivotal in restoring investor sentiment.

On July 28, the Korea Exchange reported that the KOSPI closed at 6,023.66, down 732.09 points (10.84%) from the previous trading day. This decline was the second largest of the year, following a 12.06% drop on March 4. The index opened at 6,400.27, down 355.48 points (5.26%), and quickly widened its losses. This month alone has seen six instances of declines exceeding 5%, with previous drops of 7.89% on the 2nd, 5.35% on the 8th, 8.95% on the 13th, 6.37% on the 16th, and 5.72% on the 24th. The KOSDAQ index, which fell more than 8% during the day, closed down 59.01 points (7.72%) at 705.85.

On this day, foreign investors continued to sell off large-cap stocks, while individual investors stepped in to buy. Individuals net purchased 4.33 trillion won, helping to support the index, while institutions also showed a net buying trend of 629 billion won. In contrast, foreign investors sold off 4.99 trillion won, taking profits.

Market safeguards were activated amid the steep decline, with both the KOSPI and KOSDAQ markets triggering sell-side circuit breakers and a first-stage circuit breaker. This marked the first time since June 8 that both markets had simultaneous circuit breaker activations.

The drop was primarily driven by concerns surrounding the semiconductor sector. Chinese memory chip maker Changxin Memory Technologies (CXMT) surged on its first day of trading on the Shanghai Stock Exchange, and news emerged that a Chinese company had begun developing its own deep ultraviolet (DUV) lithography equipment. This heightened fears about the competitiveness of China's semiconductor industry. While the likelihood of a rapid reversal in the technology gap is low, the commercialization of Chinese DUV technology could enhance the self-sufficiency of semiconductor equipment and alleviate bottlenecks for memory manufacturers like CXMT, contributing to market anxiety.

Additionally, negative news from the U.S. compounded the situation. NVIDIA announced it would provide $250 billion in financial guarantees related to its investment in OpenAI data centers, raising concerns about a 'circular deal' within the AI ecosystem. Doubts emerged that the large-scale investment was based on overly optimistic demand forecasts rather than actual end-user needs, shaking confidence in the overall AI investment cycle.

The domestic semiconductor giants were hit hard. Samsung Electronics closed at 220,000 won, down 13.39%, marking its largest drop of the year. SK Hynix also fell over 14%, closing at 155,500 won. The simultaneous decline of the top two market capitalization stocks led the index lower.

However, some analysts believe the market is overreacting to these concerns. Han Ji-young, a researcher at Kiwoom Securities, stated, "The stock market's immunity has weakened significantly during this chain of adjustments. There has not yet been a realistic slowdown in fundamentals such as earnings, and all technical indicators point to oversold conditions."

Ultimately, the market's focus is shifting toward the upcoming earnings reports from major tech companies. Seo Sang-young, a researcher at Mirae Asset Securities, noted, "This decline is a result of ongoing discussions and concerns in the market, combined with risk-averse sentiment ahead of the earnings announcements from large tech firms. Given the solid earnings expected from companies like SK Hynix, Microsoft, Meta, and Amazon, the market is likely to seek justification for a rebound as it assesses these results."

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