On October 12, global stock markets faced numerous challenges. Tensions in the Middle East escalated following Houthi attacks on Saudi Arabia, and concerns over an artificial intelligence (AI) bubble resurfaced. Despite this, major stock indices in the U.S. remained resilient, with the S&P 500 and Nasdaq rising by 0.59% and 0.64%, respectively. In Asia, the Nikkei 225, Hang Seng Index, and Taiwan's TAIEX all closed slightly lower.
In contrast, South Korea's stock market experienced a significant decline. The KOSPI fell by 3.65%, dropping 265 points, and fell below the 6,400 mark for the first time in two months. Over the past month, the KOSPI has dropped nearly 8%, while the Nasdaq rose by 3.9% and the TAIEX by 6.8%. What is causing the KOSPI to lag behind?
Reasons Behind KOSPI's Decline
On October 12, the KOSPI index closed at 6,384.24, down 3.65% from the previous trading day (October 8). Since the beginning of October, the KOSPI has only seen gains on two trading days, October 1 (up 1.9%) and October 2 (up 0.5%). Compared to a month ago, the index has plummeted by about 8%. The KOSDAQ index also fell, closing down 43.08 points (4.83%) at 849.19, marking its largest drop since July 29.
The poor performance of the KOSPI is largely attributed to the inability of leading semiconductor companies, Samsung Electronics and SK Hynix, to translate their strong earnings into stock price gains. While Samsung Electronics is expected to report an operating profit of 107 trillion won and SK Hynix 80 trillion won for the third quarter, the South Korean stock market has struggled to gain momentum.
On this day, Samsung Electronics fell by 4.39%, and SK Hynix dropped by 4.52%. Foreign investors have been a significant force behind this decline. According to Yuanta Securities, foreign investors have sold a cumulative 224 trillion won worth of KOSPI stocks this year, with 76% of that amount (171 trillion won) coming from sales of Samsung Electronics and SK Hynix shares.
Memory Chip Companies Face Profit Slowdown
Analysts have offered various interpretations for this trend. The most compelling argument suggests that memory semiconductor companies have entered a period of 'profit slowdown.' Heo Jae-hwan, a researcher at Eugene Investment & Securities, noted that while domestic companies' earnings per share (EPS) growth rate stands at 237%, significantly outpacing Taiwan (68%) and Japan (25%), the KOSPI's poor performance is due to a deceleration in profit growth. The stock market tends to price in future expectations, so a slowdown in profit improvement can weaken stock price momentum.
Indeed, Samsung Electronics' operating profit growth rate for the third quarter (783%) has fallen to less than half of the previous quarter's rate (1,814%). Even if the operating profit for the fourth quarter increases, the year-on-year growth rate is expected to drop to around 480%. While profits are increasing, the pace of growth is slowing.
When comparing long-term profit momentum by country, South Korea's slowdown appears steep. While corporate profit growth rates in Japan, Taiwan, and the U.S. are expected to show gradual declines in 2027 and 2028, the KOSPI's EPS growth rate is projected to plummet from 33% next year to 6.3% by 2028.
Declining Earnings Outlook for Samsung and SK Hynix
Brokerages are adjusting their earnings expectations for semiconductor companies downward. The combined net profit forecast for Samsung Electronics and SK Hynix, which have supported the index, has decreased by more than 15 trillion won in the past month. According to financial information provider FnGuide, the consensus for Samsung Electronics' consolidated net profit is 302.96 trillion won, down 17.61 trillion won (5.49%) from a month ago. SK Hynix's forecast increased by 2.26 trillion won (0.89%) to 256.32 trillion won during the same period. The combined net profit forecast for the two companies is now 559.28 trillion won, a decrease of 15.35 trillion won (2.67%) in a month.
However, the adjustment in earnings outlook for these major semiconductor firms does not necessarily indicate a deterioration in the overall market. Lee Kyung-min, a researcher at Daishin Securities, stated, "The KOSPI's 12-month forward price-to-earnings ratio (PER) has dropped to 5.1 times," adding that the market is pricing in concerns about the sustainability of profits beyond 2027 rather than this year's or next year's earnings. He further explained that the recent differential weakness of the KOSPI is due to pressures from rising interest rates and oil prices, foreign selling, the end of share buybacks, and supply gaps from ETF rebalancing.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.