"It Was the Same During the March-April Conflict... Even With All Negatives Priced In, KOSPI's Bottom Is 6,000 Points"

Recall the Learning Effect from March-April
Low Probability of SK hynix Falling into Deficit
Solid AI Investment and Industry Direction

As the domestic stock market faces an adjustment amid a combination of negative factors such as concerns about a semiconductor peak-out, geopolitical risks, and disruptions in supply and demand, NH Investment & Securities has assessed that 6,000 points represent the lowest point (rock bottom).

Kim Byungyeon, Head of Investment Strategy at NH Investment & Securities, is making a presentation at a press conference held at the Korea Exchange Seoul office in Yeouido, Seoul on the 20th. Photo by Im Chunhan

On July 20, at a press conference held at the Korea Exchange Seoul office in Yeouido, Seoul, Kim Byungyeon, Head of Investment Strategy at NH Investment & Securities, stated, "We are currently facing a situation where concerns about a semiconductor peak-out, the possibility of renewed conflict between the U.S. and Iran, and issues surrounding Chinese AI models are all overlapping. Assuming SK hynix does not return to a deficit, a forward price-to-book ratio (PBR) of 1.3 to 1.4 times is an appropriate rock bottom, and this level can be supported even when reflecting all negative factors."

Kim continued, "If converted to the KOSPI, this translates to the 6,000-point level. Even after factoring in all negatives, it is unlikely that the index will remain at 6,000 for long and is expected to rebound into the low-to-mid 7,000-point range." He added, "Next week, as we check whether big tech (major IT companies) are showing solid cloud revenue growth, we expect a gradual recovery. However, since there are still holdings trapped at higher prices, realistically, when the index reaches the mid-8,000 level, some profit-taking may occur."

NH Investment & Securities analyzed that volatility in the Korean stock market has expanded beyond levels seen during the global financial crisis, but this is the result of multiple negative factors being priced in within a short period, leading to a swift price correction. The company explained that even if there is another spike-like decline within the current index range, a rebound is possible within two to three days, and that it is important to keep in mind the learning effect from March and April, when the market bounced back following reduced uncertainty.

Regarding the semiconductor sector, the company noted that due to the application of long-term agreements (LTA), short-term earnings expectations for SK hynix may be lowered somewhat. However, the likelihood of big tech companies significantly reducing their AI investments remains low, and the industry direction is clear, making it premature to discuss a peak-out—unlike previous cycles. In particular, SK hynix's American Depositary Receipt (ADR) has traded at a premium to its underlying shares since its Nasdaq listing, and as it is included in major indexes in the future, additional capital inflows are expected.

For AI investment and capital expenditure, the five major hyperscalers are projected to increase capital expenditure by 82.3% year-on-year in 2026, and EBITDA is expected to grow by 29.4%. Although the latest AI models are evolving to improve token efficiency using techniques such as programmatic tool calling (PTC), and some GPU computation is being distributed to CPUs or external computing devices, this should not be interpreted as signaling declining memory demand. Instead, it indicates a growing importance of AI data centers and network infrastructure.

On geopolitical risk, the company suggested that negotiations between the U.S. and Iran are likely to remain deadlocked until August 16. However, since both sides face significant burdens from a prolonged blockade of the Strait of Hormuz, the company expects a scenario where limited skirmishes and protracted negotiations occur simultaneously in practical terms.

Regarding U.S. interest rates, taking into account stabilized inflation expectations, lack of wage pressure, lack of evidence for broader price increases, and the asymmetric effect of tightening on the housing market, it is expected that the Federal Reserve will maintain a strategic pause and keep rates unchanged.

Kim also said, "Although individual investors have been taking some profits this month, deposit balances remain in the 100 trillion won range, and the outstanding margin loan balance relative to market capitalization is low—meaning the risk of forced sales is limited. Additionally, with foreign ownership of semiconductor stocks at historic lows, the additional selling pressure from overseas investors is expected to diminish gradually."

This content was produced with the assistance of AI translation services.