Earnings and Rates ‘Super Week’ Begins…Samsung Electronics and SK hynix Shareholder Returns to Gauge the Market

KOSPI Falls Below 5,400 and KOSDAQ Drops More Than 2%…Investors Hold Back During intraday trading on October 26, the KOSPI fell around 1% near the 5,400 level, while the KOSDAQ declined more than 2% in the 733–736 range. The KOSDAQ again tested levels near its intraday low. Foreign investors continued to be net sellers in the cash market, though selling did not accelerate sharply. Foreign investors were estimated to have net sold approximately KRW 480 billion–550 billion on the Korea Exchange and about KRW 40 billion on the KOSDAQ during the session. By contrast, they continued to buy in the futures market. Trading value and volume fell to some of the lowest levels of the year, indicating that market participants were taking a cautious approach ahead of this week's key events and earnings announcements. Investor deposits in the stock market declined from a peak of about KRW 140 trillion to around KRW 88 trillion. Some said it was necessary to determine whether much of the selling had been absorbed, given that trading volume and value had also fallen after the sharp decline. Others argued that improved supply-demand conditions and a shift by foreign investors to net buying would be important for a market rebound. This week brings interest rate decisions in the United States, Europe and Japan, major economic indicators, and earnings reports from Korean and international companies. With Israel's general election and the U.S. midterm elections also approaching, investors appeared more inclined to wait for the results than to make an early call on market direction. Decline in Stock Market Investor Deposits — Stock market investor deposits have fallen from a peak of about 140 trillion KRW to around 88 trillion KRW currently. The peak was higher than the current level. Samsung Electronics and SK hynix: Focus Shifts from Earnings to Shareholder Returns Shareholder return policies have become a central focus ahead of SK hynix's earnings report and Samsung Electronics' final earnings release. Rather than the earnings figures themselves, market participants are looking to assess the scale and continuity of plans to enhance shareholder value, including dividends and share buybacks and cancellations. Global investors and financial institutions are also watching for the possibility that both companies will expand shareholder returns. SK hynix's decision to halt its review of a Solidaim listing prompted speculation that the company intends to present more concrete measures to enhance shareholder value in its earnings announcement. Reports also suggested that proceeds from the sale of its investment stake in Kioxia could be used for a special dividend, but the company disclosed that it was only reviewing shareholder return measures and had made no final decisions. Estimates presented on the broadcast put the dividend yields of Samsung Electronics and SK hynix at around 7–8%, depending on their share prices and the scale of shareholder returns, with the potential to rise further if additional returns are made. The argument was made that low price-to-earnings and price-to-book ratios alone will not eliminate the semiconductor sector's undervaluation, and that companies should lay out long-term shareholder return plans so investors can distinguish temporary earnings growth from sustainable profitability. Goldman Sachs was reported to have lowered its KOSPI target from 12,000 to 9,000. One view presented was that Korea's memory sector is better assessed using the price-to-book ratio than the price-to-earnings ratio, given its cyclical nature. Lee Kwang-soo countered that AI demand and long-term contracts are changing the downside risks of the traditional semiconductor cycle, making it difficult to apply past valuation benchmarks unchanged. Robotis Rallies; Related Stocks Move on iPhone Duo Durability Concerns Robotis, a Korean actuator maker, rose about 9–11% intraday after reports that the small robot “MicroDuck,” unveiled by Nvidia CEO Jensen Huang at GTC Berlin, had received more than 20,000 pre-orders. Robotis was described as a supplier of actuators for the robot. Apple's foldable iPhone Duo faced durability concerns over the weekend, as videos showing damage to its hinge and screen circulated, despite expectations for a strong launch. Shares of related Korean suppliers came under pressure. Although some companies said they were not connected to Apple products, investor concerns persisted. Reports also said that orders for the iPhone Duo were significantly backlogged. However, caution was advised against drawing firm conclusions about related component stocks before the product's durability and actual sales trends become clear. Security-related stocks also gained amid warnings from the U.S. administration about security vulnerabilities and concerns over security incidents at Korean financial companies. No specific stock names or gains were cited, but heightened vigilance over security risks served as a short-term catalyst for related shares. AI Investment Must Prove Its Profitability Beyond Capacity Expansion For this week's earnings reports from hyperscalers such as Microsoft and Alphabet, cloud revenue growth, the pace of AI capital expenditure and free cash flow were identified as key metrics to watch. Companies have little room to cut AI investment, but expanding it also increases financing needs and cash-flow pressures. One view was that the success of AI businesses depends less on the scale of investment than on demonstrating that AI can translate into revenue and profits. With operating cash flow declining, investors want to see how quickly AI-related revenue is growing and whether the potential to generate actual profits has increased. Examples of AI improving productivity and profitability at mainstream businesses, rather than remaining confined to technology companies, are also becoming important. Spotify was cited as an example of using AI-driven recommendations to increase paid subscribers. In Korea, Samyang Foods was presented as a case of improving productivity and profitability through collaboration with Palantir. In the robotics industry, MicroDuck, an open-source bipedal robot developed by France's Pollen Robotics with investment from Nvidia-backed Hugging Face, drew attention. Priced at about $399, the robot uses a model in which users and developers share data to teach it how to move—a structure that could accelerate the adoption of robotics and AI technology. Won Strength and Rate Decisions in Focus…Markets Await FOMC and Key Data The won strengthened to 1,322 per U.S. dollar, down about KRW 4.20 from the previous close. A stronger won can reduce costs for companies that import fuel, such as airlines, but companies that process imported materials for export also need to weigh the currency's effects. A weaker exchange rate can ease the burden on households that consume imported goods such as food ingredients. However, a strong won is not always beneficial to the economy and stock market, and its impact on Korean companies can vary by industry given the complexity of their export and import structures. A rate in the 1,200s was also discussed as a possibility, though the view expressed was that markets should watch whether it is reached and how conditions respond. The U.S. Federal Open Market Committee will meet from Tuesday through Wednesday local time, with its decision and the Fed chair's press conference scheduled for the early hours of October 29 Korea time. Markets broadly expect the policy rate to remain unchanged, but comments on the possibility of another rate hike by year-end and the future path of rates are key variables. The European Central Bank and the Bank of Japan are also due to make rate decisions this week, with a hold seen as the prevailing expectation, according to the report. Inflation pressures and member states' fiscal conditions were cited as obstacles to policy decisions in Europe, while in Japan attention is focused not only on whether rates will be held but also on the pace of rate increases over the medium to long term. The United States is due to release September personal consumption expenditures inflation data and its advance third-quarter GDP estimate; Korea is set to publish its consumer sentiment index and advance GDP estimate. Middle East Tensions Push WTI Above $100…Oil and Rates Add to Pressure International oil prices rose as tensions in the Middle East escalated over the weekend. Reports said Houthi rebels had attacked Riyadh airport and the East-West Pipeline in Saudi Arabia, and that Saudi Aramco had advised some headquarters employees to evacuate. U.S. President Donald Trump said he could resume limited military operations against Iran while also pressing Tehran to negotiate. Israel, for its part, raised the possibility of further attacks on Iran-backed groups, as rhetoric continued on both sides. Military and political tensions are rising ahead of Israel's general election and the U.S. midterm elections. WTI rose to $103 a barrel intraday and remained elevated at around $101 afterward. Higher oil prices could increase U.S. gasoline prices and the cost of living, weakening the spending power of lower-income households. Since consumption supports the U.S. economy, such pressure could fuel growth concerns and push Treasury yields higher, according to the analysis. The U.S. 10-year Treasury yield stood around 4.9%, near 5%. Concerns were raised that the Middle East conflict could continue into the election period, but oil prices eased somewhat from their intraday highs, providing some relief to the Korean stock market. ‘Super Week’ Packed with Major Central Bank Decisions and Big Tech Earnings Central bank meetings and corporate earnings are concentrated this week, potentially increasing market volatility. Tuesday's schedule includes Israel's general election and Korea's consumer sentiment index and advance third-quarter GDP estimate. Oracle's Investor Day and an Apple product event are scheduled for Wednesday, with Oracle's business outlook also drawing attention in the software sector. In Korea, earnings reports are due from HD Hyundai Marine Solution, HD Hyundai Construction Equipment and BNK Financial Group, followed by HD Hyundai Electric, Hanwha Ocean, Hanwha Systems, Hanmi Pharmaceutical and ST Pharm, among others. SK hynix, Samsung Electro-Mechanics and HD Korea Shipbuilding & Offshore Engineering are also on the schedule. In the United States, Coca-Cola, Corning, Boeing and PayPal will be followed by Seagate. Microsoft and Alphabet are due to report on Thursday, while Samsung Electronics will release its final earnings. Samsung SDI, SK Innovation, Samsung SDS, Hyundai Motor and Hanwha Solutions are also scheduled to report. Intel, Amazon and SanDisk are due to report on Friday. In Korea, Kia, APR and Hyundai Mobis are scheduled. This earnings season is expected to offer a chance to assess not only whether growth in semiconductors and AI investment can continue, but also how companies plan to return profits to shareholders. [Kwangsoo's Take] Stop-Loss Rules Should Be Reset for Today, Not Based on the Past When the index falls rapidly, it can be difficult to stick to a predetermined stop-loss level. Rather than deciding whether to sell solely because losses have already reached 40–50%, investors should reassess the tolerable loss and the rules for action by imagining they are investing at the current price. One example was to reduce stock holdings by 30% if the KOSPI fell below 5,300 while trading in the 5,400–5,500 range. If that threshold is not reached, investors can continue holding and carry out the planned action if the market falls further. The argument was that having clear rules and a plan can also reduce the anxiety of constantly watching the market. It was also emphasized that action rules should apply when prices fall, rather than prompting premature sales when prices rise. For example, if an investor had planned to sell at an index level of 5,000 but the market rebounded to 5,700, the stop-loss threshold could be raised to 5,300. Treating a rise itself as a sell signal, the explanation went, can lead to repeated mistakes that prevent gains from compounding. Response scenarios should vary according to investors' debt levels and the proportion of their assets invested in stocks. Those with substantial margin debt or loans may reduce their exposure before the index reaches a certain level, while investors without debt but with large stock holdings can sell in stages at levels such as 5,300, 5,100 and 5,000. Investors with lower exposure and ample cash can plan to retain some holdings or buy again at lower levels. Investors should also distinguish among the reasons their holdings are falling. Even when exposed to the same broad market decline, sectors such as semiconductors and power equipment may fall for different reasons and by different amounts. Rather than comparing loss percentages alone, investors should identify the reasons behind declines in each company and industry, then prepare a scenario suited to their financial circumstances. Lower Volatility and Political Uncertainty Could Turn Undervaluation into a Buying Opportunity Goldman Sachs cited high volatility and a slowdown in earnings growth as reasons for lowering its target for the Korean stock market. The KOSPI's 60-day realized volatility is typically in the 10–30% range but can exceed 80% during sharp sell-offs. It was also noted that the trading structure of leveraged ETFs can amplify closing-price swings. Lee Kwang-soo interpreted uncertainty as the reason foreign investors may hesitate to buy even when share prices are cheap. When daily price swings widen, investors find it harder to anticipate the market's direction the next day, while rapid growth in semiconductor earnings also raises questions about its sustainability. Samsung Electronics and SK hynix could demonstrate the durability of their earnings by sustaining high profits for several quarters, but reducing market uncertainty will take time, according to one view. One analysis suggested that the balance of power between Congress and the administration could change depending on the U.S. midterm election results. Democrats were seen as likely to win the House, while the Senate outcome was described as hinging on the electoral map and turnout among Republican supporters. Scenarios presented included Democrats checking the Trump administration's tariff, tax-cut and fiscal-spending policies if they won both chambers, or continued policy gridlock if Congress were divided. Past analyses were also cited suggesting that a decline in political uncertainty after the election could benefit stocks. U.S. equities had often risen after midterm elections, and statistics presented showed larger gains when Congress was divided. One interpretation was that political gridlock could reduce the influence of political factors and shift the market's focus back to economic indicators such as corporate earnings. It was noted that Brazil-focused investment funds traded in Asia fell about 10% after the announcement of President Lula's election victory. Investors concerned about fiscal expansion and populism under a left-wing government may have been betting on an opposition victory, though it was also argued that the economy was not necessarily poor during Lula's previous time in office. Korea, by contrast, was considered difficult to compare directly with Brazil, as then-presidential candidate Lee Jae-myung had clearly signaled his commitment to revitalizing the stock market and economy even before the election, raising market expectations. [Kwangsoo's Take] Shareholder Returns Are a Corporate Responsibility, Not a Choice The argument was made that when a company invests shareholders' capital and earns profits, shareholder returns are not merely an option for management. Rather than delaying larger returns on the grounds that dividends would reduce investment capacity, companies should meet their responsibilities to shareholders before discussing growth investment. It was emphasized that profits earned by the company, including proceeds from the sale of its investment stake in Kioxia, were generated using shareholders' capital and bearing their risks, and should therefore go back to shareholders. The logic was that if a company sets out long-term plans for dividends, share buybacks and cancellations, it can signal to the market that current earnings reflect sustainable profitability rather than a temporary boom. The view was also added that the government should expand its use of AI in tax collection. Rather than having officials search for tax evaders one by one, analyzing relevant information with AI could improve administrative efficiency. The point was also made that AI could substantially change productivity in public administration and corporate operations, in addition to consumer-facing services.