[Beyond the Scene] KOSPI Weighed Down by Peak-Out Fears

Bull market may be effectively over
Increase cash holdings and take a cautious approach

On October 8, when Samsung Electronics announced an astonishing third-quarter operating profit of 107 trillion won, its share price instead fell by 2.2%. The market reacted as if it had already expected results like these and wanted to see more. Samsung Electronics shares fell further, bringing to mind the stock market adage that “good earnings and a good share price are two different things.”

The disconnect between earnings and share prices is occurring across many industries, not just semiconductors. Shipbuilding is a prime example. The recent share prices of HD Hyundai Heavy Industries, Hanwha Ocean and Samsung Heavy Industries have fallen more than 50% from their highs this year. These companies are likely to see their third-quarter operating profits surge by 70% to 80% or more year over year, yet their share prices are falling. Power equipment makers such as HD Hyundai Electric and Hyosung Heavy Industries are also certain to report strong earnings, but their share prices have dropped.

These are among Korea’s key industries and were also sectors that drove the KOSPI’s rise in the first half of the year. Although they are in different industries, they share a common reason for their falling share prices: concerns that earnings will soon peak and can only decline from here. Adding to the pressure, U.S. Treasury yields surged, making stocks less attractive, and the KOSPI eventually fell below 6,000 points intraday for the first time in two and a half months.

Supply and demand are also unfavorable. Individual investors were net sellers of 5.6 trillion won worth of KOSPI shares in the third quarter of this year, while making net purchases of 10 trillion won worth of U.S. stocks. Individual investors had been a driving force behind the domestic stock market’s rise in the first half of the year, but are now preparing to leave the Korean market. Foreign investors’ selling of Korean stocks, close to a fire sale, has continued throughout the year. Domestic institutional investors, including pension funds, also appear to lack the funds to buy more Korean stocks, leaving no major buyers to stem the market’s decline.

How should individual investors respond if the market downturn continues? Stock market experts with a cautious outlook agreed that investors should build up their cash holdings and avoid aggressive investing during periods like this.

Kim Youngik, an adjunct professor at Hanyang University’s Institute for Future Talent Education, expressed concern that “the KOSPI could fall to the low 5,000s next year as U.S. Treasury yields surge.” He advised that “a cautious approach is needed, such as gradually increasing bond holdings rather than chasing highly valued growth stocks.” Lee Jaeman, head of global investment strategy at Hana Securities, who predicted the end of the bull market last June, also said, “With the yield on 10-year U.S. Treasury bonds exceeding 5%, stocks have become much less attractive compared with bonds,” adding that “if yields rise further, the stock market could fall further.” They had been warning of a market downturn for months, and their concerns have now become reality.

Investment legend Warren Buffett has long emphasized on numerous occasions that “the most important thing is not to lose money.” Not losing money also means avoiding excessive risk and investing defensively. If you build a defensive portfolio and survive the bear market, you can also find opportunities when the bull market returns. 

Lee Changhwan, Deputy Head of the Securities and Capital Markets Department

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