The South Korean stock market is experiencing significant volatility due to a combination of rising bond yields from U.S. interest rate hikes, increasing international oil prices, and a strengthening won. Over the past week, the domestic market showed signs of hesitation amid discussions on the pace of artificial intelligence (AI) development and the hawkish stance of the U.S. Federal Open Market Committee (FOMC). This week, the market is expected to face further fluctuations due to the upcoming U.S.-China summit and the Chuseok holiday.
According to the Korea Exchange, the KOSPI closed at 6,894.23 on September 18, down 15.68 points (0.23%) from the previous week’s close of 6,909.91. The domestic market initially plummeted by over 3%, dipping into the 6,600 range, before narrowing its losses by the end of the week. In the securities market, foreign and individual investors sold a net 8.871 trillion won and 292.8 billion won, respectively, while institutions bought a net 1.053 trillion won, providing some support.
Several factors are contributing to the market's volatility. The military conflict between the U.S. and Iran, along with escalating tensions between Saudi Arabia and Yemen's Houthi rebels, has kept international oil prices above $100. Additionally, the yield on the U.S. 10-year Treasury bond has surpassed 5% for the first time in 19 years.
As the market awaited the FOMC meeting, it maintained a cautious stance, which intensified after the Fed raised the benchmark interest rate by 25 basis points to a range of 3.75% to 4.00% during its meeting on September 15-16. Following the meeting, Fed Chair Kevin Warsh made several hawkish comments.
The call for a slowdown in AI development by leaders of global AI companies, including Anthropic, OpenAI, SpaceX, and Google DeepMind, has also exerted downward pressure on the South Korean stock market, which has a significant semiconductor sector. However, as the AI competition escalates into a geopolitical struggle, the initial concerns over the slowdown have quickly subsided, leading to a rebound in the domestic market in the latter part of the week.
Market analysts are focusing on the U.S.-China summit scheduled for September 24. A key agenda item will be negotiations on AI, and if the U.S. tightens its regulations on AI and semiconductors concerning China, it could significantly impact the supply and demand dynamics of major domestic stocks. As of September 18, the market capitalizations of Samsung Electronics (1,680 trillion won) and SK Hynix (1,350 trillion won) accounted for 43.9% of the total KOSPI market capitalization.
The Chuseok holiday also presents a variable. With a long holiday anticipated, there is a possibility of a conservative shift in overall market supply and demand. Historically, the market has shown weak performance before holidays due to supply gaps, but tends to rebound afterward as waiting demand flows in.
Lee Kyung-min, a researcher at Daishin Securities, noted, "Over the past decade, the average KOSPI return during the five trading days before and after Chuseok has been -0.42% and 0.68%, respectively. Given the hawkish FOMC's impact and the supply gap before the holiday, a short-term market downturn could present a valid buying opportunity for a rebound after the holiday."
Analysts still consider the KOSPI to be in a severely undervalued state. The 12-month forward price-to-earnings ratio (PER) for the KOSPI remains around 5, a historical low, suggesting that short-term volatility should be viewed as an opportunity to increase holdings.
Key sectors include semiconductors, power equipment, and automobiles. Daishin Securities highlights IT hardware, retail, automobiles, and power equipment as sectors to watch, while NH Investment & Securities recommends semiconductor stocks, energy storage systems (ESS), AI platform services, securities, and biotechnology.
Na Jeong-hwan, a researcher at NH Investment & Securities, stated, "The consensus for KOSPI net profit this year is 806.3 trillion won, with an upward adjustment to 1,047.5 trillion won for next year, although the pace of increase has slowed. The KOSPI's 12-month forward PER is at a record low of 5.5, indicating that doubts about earnings are suppressing stock prices. While there are concerns about earnings being lowered due to the falling won-dollar exchange rate, the exchange rate is rebounding in the 1,330 won range, and as normalization occurs, these concerns will ease. As the performance of AI companies like Micron becomes clearer, doubts will gradually dissipate, and if oil prices decline stabilizing U.S. long-term Treasury yields, stock price recovery will accelerate further."
* This article has been translated by AI.
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