KOSPI's Month-Long Correction Continues Amid Foreign Selling; Chip Valuation Re-Rating Seen After September

KOSPI hit a record high near the 9100 level on June 17 before entering a correction on perceptions of a short-term peak. Shin Jung-ho, Research Center Head at LS Securities, noted that corrections require both time and price adjustment, and given the depth of this pullback, the time correction could extend at least until September. It was also noted that KOSPI's volatility has widened to roughly five times that of the US VIX.

On the weak won, Shin distinguished between earning dollars and dollars actually flowing in. Annual foreign net selling of KOSPI has reached roughly 180 trillion won, weakening the won, while concerns over renewed Fed rate hikes have strengthened the dollar broadly, weakening the yen and other currencies as well. A peaking global M2 growth rate since February was also cited as a backdrop for foreign selling.

However, it was noted that foreign selling cannot always be read as the cause of price declines. With KOSPI up nearly 100% in the first half alone, trimming-driven portfolio rebalancing has continued, and since foreign ownership by market cap keeps rising as the index rises, continued selling is structurally likely. Conversely, if the index falls back toward the low 7000s or high 6000s, foreign selling could actually ease.

Leveraged ETFs and short-gamma-driven volatility were also cited as weighing on the market, with circuit breakers triggered twice in a week — an abnormal level of volatility. Still, such sharp drops could trigger a self-correcting reduction in risk-taking intensity across the market. Once earnings season passes into August-September, the current sharp volatility is expected to ease somewhat.

Disagreement over recent brokerage reports on chip stocks was clarified. One report suggesting SK Hynix earnings could come in somewhat below consensus relative to Samsung Electronics was seen as overinterpreted by the market as bearish. Samsung's earnings still exceed consensus even after reflecting roughly 4 trillion won in provisions, and the report's point was simply that expectations for HBM-heavy SK Hynix may need modest tempering.

In contrast, a separate report that has consistently called a peak since well before the 200,000-won level was criticized for repeating concerns about hyperscaler capex slowdown and cycle aftereffects without concrete new evidence. The host said reviewing roughly 30 domestic reports from the past month turned up nothing substantive enough to shake the underlying bullish view on the chip/AI ecosystem.

SK Hynix's ADR listing was interpreted as more than simple capital raising — a symbolic signal of preemptive investment commitment ahead of a shortage phase. The persistent premium gap between TSMC's ADR and its Taiwan-listed shares was cited as a parallel. This was read as a sign that the market is shifting focus from chipflation to volume (Q) growth.

Micron's roughly 85% gross profit margin raised sustainability questions, coinciding with Apple's price hikes and Meta's pivot toward profitable revenue, fueling short-term concern over hyperscaler capex capacity. Samsung's earnings guidance later this month and hyperscalers' late-July earnings were flagged as key checkpoints.

Korea's cosmetics value chain splits broadly into ODM/OEM manufacturers, brand companies, and export-distribution platforms. ODM firms can propose their own proprietary formulas, while OEM firms manufacture strictly to the brand's specified recipe. Leading ODM/OEM players cited included Korea Kolmar, Cosmax, Cosmecca Korea, and CNC International, with Korea Kolmar, Cosmax, and Italy's Intercos named as the global top three.

Despite expectations a decade ago that Chinese rivals would catch up — even after hiring away Korean R&D talent — Korea Kolmar and Cosmax have maintained their top-three global standing. Amorepacific and LG H&H manufacture flagship brands like Sulwhasoo and Whoo in-house, while most newer brands like Wooklock operate factory-less, competing purely on marketing and ideas.

Despite record K-beauty exports, brand-related stocks have lagged manufacturers in share price gains. Unlike the 2014 boom driven by Chinese tourists and duty-free Sulwhasoo/Whoo sets, today's landscape features too many brands with shortening trend cycles, making it hard to predict which will hit. This favors positioning in manufacturers over individual brands to capture growth more reliably.

Structural fragmentation of demand was cited across consumer categories as algorithm-driven content consumption diversifies tastes, while falling online entry barriers have flooded supply with new brands. The conclusion favored large-cap brands like Amorepacific alongside ODM players like Korea Kolmar and Cosmax over individual emerging brand names.

Shin argued that for KOSPI to re-rate toward the 15,000-20,000 range, volume (Q) growth from AI diffusion is essential, and the key macro trigger to accelerate that is a Fed rate cut. AI investment so far has been concentrated among a handful of cash-rich hyperscalers, who themselves are increasingly relying on bond issuance and equity raises as cash reserves deplete.

Lower rates would enable non-hyperscaler firms to join AI investment in earnest, driving volume growth that could trigger valuation re-rating for Samsung Electronics and SK Hynix. Easing political uncertainty combined with clearer corporate capex guidance was flagged as a potential trigger for chip stocks' next leg up.

An imminent Fed rate cut remains unlikely, and stronger-than-expected inflation data next week could revive rate-hike concerns. Still, recently softening employment data was cited as a modestly positive signal.

Shin said that as KOSDAQ's new tiering system weeds out weak companies and separates Standard and Premium tiers, small/mid-cap stocks with solid earnings and governance likely to qualify for the Premium tier deserve attention. Just as chip stocks like Samsung Electronics emerged as a new trusted asset class beyond Gangnam real estate and medical licenses, quality KOSDAQ names could play a similar role.

Undervalued firms with excess net cash relative to market cap were flagged as likely activist targets. As boards face growing pressure to represent shareholder interests, poorly governed management will find it harder to ignore reform demands under the new tiering rules. This dynamic could become visible around August's small/mid-cap first-half earnings releases.

Host Park Si-dong candidly shared how each panelist has responded during the correction. One had already sold low-conviction names while holding firm on high-conviction ones like Samsung Electronics and SK Hynix; another had trimmed index ETF and chip exposure by 35% to preserve dry powder for future opportunities; a third had avoided checking their account altogether and instead re-read every recent report. Trust in the market itself, all agreed, remained intact.

Park argued the current sharp KOSPI decline stems not from fundamental damage but from indiscriminate volatility driven by leveraged ETFs. He pointed to how an Alteogen-related issue dragging down KOSDAQ's top stock triggers index-wide selloffs, and how Samsung Electronics or SK Hynix turning negative sparks indiscriminate selling across unrelated names. He criticized the market as currently paralyzed, unable to properly price in either good or bad news.

He also flagged the homogenization of the mutual fund market as a structural problem. Funds once had distinct identities — value, small-cap, tech-focused — giving retail investors real style choices, but most funds now simply track the index, eliminating any reason to pay fees for active management. This, combined with ETFs' constraint to track indices, has led to a broader loss of diversity across the market.

Citing the story of General Sherman, a giant sequoia in the US that has survived for millennia by intertwining its roots with neighboring trees, Park urged investors to link arms honestly during this difficult period. He said admitting uncertainty and being transparent about the hosts' own possible mistakes is how trust in the market is preserved. He added that while current levels appear close to a record-low valuation line, further downside cannot be ruled out.