KOSPI declined 28.5% from its intraday high of 9114 points on June 21 to 6516 points on July 20, according to Korea Exchange data reported on July 27. Eugene Investment & Securities analyst Heo Jae-hwan stated the decline resulted from Bank of Korea rate hike expectations and deteriorating cash flows at global Big Tech companies. The drop ranks among Korea's steepest since the 2008 global financial crisis, comparable to the COVID-19 decline (-36%) and the 2022 U.S. rate hike period (-31%).
Eugene Investment & Securities Forecasts One-Month Recovery Timeline
Heo Jae-hwan from Eugene Investment & Securities stated in a report on July 27 that stock price recovery would take approximately one month. The analyst cited two historical patterns following sharp declines: rapid V-shaped rebounds like the COVID-19 period, and prolonged 14-month bottoming processes with 35% declines as seen in 2022. Heo noted that while the current decline resembles COVID-19 in its short-term sharp drop characteristics, "this time it is difficult to expect a V-shaped recovery."
Analyst Identifies Bank of Korea Rate Policy and Big Tech Cash Flow as Constraints
Heo explained that expectations for additional Bank of Korea rate hikes are stronger than Federal Reserve actions, creating a monetary policy direction markedly different from past periods. The analyst highlighted that major Big Tech companies including Alphabet showed first-quarter operating margin slowdowns from 36.6% to 34.2%. Heo stated, "Alphabet's free cash flow reversed to negative for the first time," adding that "doubts about the sustainability of capital expenditures continue."
Leveraged ETF Trading Volumes Show Mixed Resolution Patterns
The analyst analyzed leveraged ETF trading impacts on the market. Heo stated that Samsung Electronics single-stock leveraged ETF trading volumes decreased to pre-launch levels from May 27, while SK Hynix leveraged ETF trading volumes did not decrease. The analyst noted that SK Hynix leveraged ETF trading volumes exceeded the underlying stock's trading volumes, stating "leveraged ETF aftereffects are being resolved but have not ended."
Further Decline Pressure Expected to Subside
Heo assessed that additional sharp declines would moderate. The analyst stated, "Given the unusual short-term price decline, downward pressure on the domestic stock market is expected to gradually subside. The KOSPI PER (12-month forward) excluding semiconductors is 7-8x, the lowest since April of last year." Heo added that "the recovery process is not expected to be limited to semiconductors alone," recommending diversified attention to machinery, shipbuilding, and construction sectors alongside semiconductors and IT hardware based on decline rates from this year's highs.
FAQ
What caused the KOSPI stocks to decline 28.5% from June 21 to July 20?
Eugene Investment & Securities analyst Heo Jae-hwan stated the decline resulted from Bank of Korea rate hike expectations and deteriorating cash flows at global Big Tech companies. The analyst noted that Alphabet's free cash flow turned negative for the first time, and major Big Tech operating margins slowed from 36.6% to 34.2% in the first quarter.
How long does Eugene Investment & Securities forecast for Korean stocks recovery?
Analyst Heo Jae-hwan stated in a July 27 report that stock price recovery would take approximately one month. The analyst noted that while the decline pattern resembles COVID-19's short-term sharp drop, a V-shaped recovery is difficult to expect this time due to different monetary policy directions and Big Tech cash flow concerns.
