KOSPI Pressured by Fed Chair Kevin Warsh's Rate Calculus, While the Inheritance Tax 'Stock-Price Suppression Prevention Act' Remains Riddled with Loopholes

The KOSPI fluctuated around the 6,240 level, down about 0.6%, while the KOSDAQ widened its decline to 2.3%, falling to around the 783-point range. The KOSDAQ's drop was interpreted as profit-taking following five consecutive days of gains. Foreign investors sold in both the KOSPI and KOSDAQ cash markets, but continued buying in the futures market for a second straight day.

The won-dollar exchange rate continued its stabilizing trend, falling to the 1,419 won range even as both the yen and the dollar index rose.

Looking at the earnings season overall, six out of ten listed companies posted second-quarter earnings surprises that beat consensus, suggesting corporate earnings themselves remain solid. However, the assessment also noted that this earnings strength has not been immediately reflected in stock prices.

Analysts also noted that as large-cap earnings announcements wrap up and the market shifts into an earnings-driven, stock-picking phase centered on small- and mid-cap results, individual stocks are swinging sharply, making it difficult to establish overall market direction.

SoftBank Group's first-quarter net profit came to 347.3 billion yen, down from the same period a year earlier but above consensus. The problem lies in the Vision Fund segment, where investment profit fell 65% year-over-year to 255.7 billion yen. The decline in Chinese ride-hailing firm DiDi Global's share price was cited as the main cause. SoftBank Group shares, which had fallen sharply during the session, pared losses to close the morning session down about 3%.

The fallout from SoftBank's weak results weighed on AI hardware-related stocks across the Japanese market. Kioxia fell 4% and Murata dropped about 3%, while Advantest and Taiyo Yuden also declined, and Lasertec plunged as much as 13% at one point.

Analysts noted that because SoftBank, as a leading AI investor, serves as a bellwether for global AI investment sentiment, the market is closely watching whether this earnings slump reflects a broader industry downturn or an issue specific to individual holdings. Regarding its OpenAI investment, questions were also raised about SoftBank's capacity for further investment, since it has been raising funds by pledging additional stakes as collateral.

Separately, the notably low weighting of foreign investors, including from Japan, in Korean equities was attributed to the underdeveloped shareholder return culture among domestic companies. While corporate earnings are strong, the lack of connection with investors through dividends or share buybacks was cited as reducing investment appeal, with the assessment that changing this culture would be a key driver in resolving the Korea Discount.

BGF Retail posted second-quarter operating profit of 84.9 billion won, up 22% year-over-year and 17% above consensus, sending shares up as much as 13%. The result was attributed to a combination of heatwaves, a shorter monsoon season, use of heatwave relief subsidies at convenience stores, and an increase in foreign tourists. GS Retail also saw operating profit rise 27% year-over-year, beating consensus by 8%, with shares gaining about 6%, driven by its own GS25 brand.

Department stores, by contrast, saw shares plunge despite earnings growth. Lotte Shopping's second-quarter operating profit came to 89.9 billion won, up 120% year-over-year, but missed market estimates by 17%, sending shares down as much as 16%. Hyundai Department Store's results were not bad in absolute terms either, but missed consensus, leading to a lowered target price and a third straight day of declines.

The department store sector's roughly 50% correction from its peak was attributed to overly optimistic consensus set by analyst reports throughout the first half, which inflated market expectations excessively. Critics noted that despite being a sector with solid domestic-demand-driven earnings, the sharp declines that mirrored the semiconductor and AI stock correction stemmed from this wide gap between consensus and reality.

POSCO Future M rose about 3% on news that it signed a deal to supply more than 190,000 tons of LFP cathode material to a domestic battery maker over six years from 2024 to 2032, while Samsung SDI gained about 4%. At current prices, the deal is worth roughly 3 trillion won. LFP is bulkier and has lower energy density but is cheaper, making it mainly used in ESS (energy storage systems) for data centers and renewable energy.

Korea's battery industry has so far focused on the electric vehicle market with NCM ternary batteries, which are compact and have high energy density, but had effectively ceded the low-cost, automotive-grade LFP market to China. Analysts see this as a sign that domestic firms are shifting strategy, targeting the LFP market not for automotive use but for the growing ESS demand driven by AI data centers.

Still, domestically made LFP remains more expensive than Chinese products, leading firms to sell not individual battery cells but entire power-stabilization systems as a package — leaving price competitiveness as an ongoing challenge. Ultimately, since the structure requires the U.S. to exclude Chinese batteries from the data center supply chain for domestic firms to fully capture end demand, the direction of tariff and trade policy is seen as the real determinant of the scale of the benefit.

According to a Financial Times report, newly appointed Fed Chair Kevin Warsh said he may prepare to raise interest rates if upcoming inflation data comes in higher than expected. Sources close to Warsh said he acknowledged he had not sufficiently emphasized his core message of price stability since taking office, and that he has spoken with President Trump irregularly, exchanging various views. However, the report noted that Trump did not directly pressure him to adopt any specific policy.

The U.S. 10-year Treasury yield currently stands at 4.68%, the 30-year has surpassed 5.2%, and the 2-year is around 4.25%. The 10-year yield has risen more than 10% over the past six months, approaching record highs. While Warsh stated he would not preemptively raise the policy rate himself, he also said the rise in market rates is reasonable, effectively tolerating it — a stance interpreted as a strategy to build justification for a rate hike by letting market rates rise first and following afterward, mindful of President Trump's pressure for rate cuts.

Adding to the upward pressure on Treasury yields, Alphabet announced plans to issue up to $25 billion in corporate bonds. At a rate of around 6%, roughly 1.2 percentage points above the U.S. policy rate, the funding is intended for AI infrastructure investment and is seen as a gauge of the bond issuance environment and market liquidity sentiment for major tech companies going forward. Some observers suggested that strong demand for the issuance despite the high rate could actually be read as a sign of confidence in Google.

As Japan's Treasury sales aimed at defending the yen have had the side effect of pushing up U.S. Treasury yields, moves were also observed toward the U.S. intervening by having its own Treasury Department hold Japan's U.S. Treasury holdings on its behalf and supplying dollars directly — a move analysts said could unintentionally inject market liquidity and make rate hikes even harder to pursue.

The U.S. July employment report was scheduled for release that night, Korea time. The market was expecting an unemployment rate of 4.2% and nonfarm payrolls growth of about 80,000, and together with next week's CPI and PPI inflation data, the report was cited as a key variable that would influence the direction of rate decisions at the upcoming September FOMC meeting.

Iran and Oman are reportedly negotiating an alternative route to bypass the Strait of Hormuz and how to split transit fees. Under discussion is a plan in which inbound shipments to Iran would use the Hormuz route while outbound shipments would use the Oman route, with fees split at around 5-7%, with Iran and Oman first reaching an agreement between themselves before seeking U.S. approval.

News that this agreement is in progress alone has fostered expectations that an additional 60-day ceasefire could continue, but a recurring pattern has emerged in which oil prices swing whenever negotiations break down or are delayed. Indeed, oil prices jumped 4% overnight, and Brent crude added another roughly 1% on the day, climbing to around $78.

The core idea behind the government's planned revision to the Inheritance and Gift Tax Act was to eliminate the incentive for controlling shareholders to deliberately suppress their company's stock price to reduce inheritance tax, by basing taxation on the company's net asset value — its intrinsic value — instead. However, critics point out that the actual government proposal still remains structured around judging by stock price itself, departing from its original intent.

The government designated stocks that ranked in the bottom 25% of the KOSPI or bottom 10% of the KOSDAQ for 12 consecutive half-year periods out of 13 — effectively six out of six and a half years — as suspected cases of 'stock-price suppression.' The problem is that a company can escape the criteria simply by boosting its ranking just once or twice during that period, leaving a wide loophole for companies genuinely intent on suppressing their stock price to easily evade the rule.

Since the Inheritance and Gift Tax Act must adhere to the principle of statutory taxation, critics also raised concerns about the law's lack of clarity, since using relative rankings means that even identical conduct could result in different companies being subject to the rule depending on fluctuations in other companies' rankings. Some even suggested this raises potential constitutional issues.

The plan to check for actions with negative effects on stock price, such as dual listings or the issuance of exchangeable bonds, was seen as having limited practical effect since the exchange and the Financial Services Commission already handle these matters under separate regulations. Meanwhile, the criterion of a 30% decline from the highest average price over a look-back period ranging from the most recent six months up to three years raised concerns of an unintended side effect — that companies seeking to avoid inheritance tax might instead be incentivized to suppress their stock price over a long period of one to three years rather than just four months.

Ultimately, even if a penalty is applied by valuing the appropriate value at 1.3 times, the structure allows for exemption if the National Tax Service's valuation review committee accepts that there was no intent to avoid taxes. As a result, assessments have emerged that the 'stock-price suppression prevention act,' which the market had expected to serve as a genuine financial safeguard, has instead become an anticlimactic outcome, leaving only tax-technical maneuvering behind.

President Trump signed an executive order setting a minimum import price and imposing an additional 15% tariff on polysilicon and its derivatives, a key material for semiconductors and solar panels. The measure aims to curb dumping of low-cost imports, primarily from China, and protect domestic production, and is set to take effect in December, 120 days from now.

News of the move sent domestic solar-related stocks higher early in the session, with Hanwha Solutions up as much as 8%, but the gains were pared as the broader market weakened, with some stocks turning negative. Like batteries, the solar industry has long seen its market prices dragged down by low-cost Chinese panels and polysilicon, and with strong residential solar demand in the U.S., the tariff is expected to affect both U.S.-listed companies and domestic Korean suppliers.

As shown by the department store report case, the recurring gap between market expectations and actual earnings was traced to the underlying issue of how domestic analysts are treated. Korean brokerages remain heavily focused on earning revenue through trading commissions, but it was emphasized that a brokerage should fundamentally be a place that creates and sells good information, with the research center as the core department responsible for producing that information.

However, many domestic brokerages view analyst compensation as a cost rather than an investment, with some internally referring to their research departments as 'cost centers.' The assessment is that low pay relative to workload, combined with the barrage of complaint calls that follow weak results, has created an environment where good information struggles to emerge.

The same dynamic was cited as the reason candid reports lowering target prices due to insufficient shareholder returns — such as dividends or buybacks — remain rare, even when earnings surprises occur. With the brokerage industry currently posting strong profits, the argument was raised that those profits should be reinvested into strengthening research capabilities, allowing quality information to be produced and the market's self-correcting function to be restored.