This week, the domestic stock market experienced a record rebound after a significant drop due to concerns over the semiconductor industry and distortions in the supply and demand of single-stock leveraged products. The surge was fueled by signals of continued AI investment from major U.S. tech companies. Market attention is now focused on whether the panic selling has subsided and if the AI investment cycle will continue, along with the normalization of supply and demand leading to a sustained rebound.
According to the Korea Exchange, on July 31, the KOSPI closed at 6,595.45, up 1,001.89 points (17.91%) from the previous trading day. The KOSDAQ also rose by 74.98 points (11.63%) to finish at 719.76. However, for the week of July 27-31, both the KOSPI and KOSDAQ fell by 1.42% and 3.80%, respectively.
The KOSPI had plummeted by 10.84% on July 28 and dropped another 5.98% on July 29, reaching as low as the 5,200 range. However, on July 31, it rebounded by over 1,000 points, attempting to recover the 6,600 level. The KOSDAQ also fell to the 630 range on July 29 but surged back to near 720 on July 31.
This week’s market exhibited extreme volatility due to simultaneous concerns over the AI investment cycle and large-scale liquidations of leveraged positions. The emergence of Chinese AI models, worries about capital expenditure burdens among U.S. tech giants, and geopolitical risks in the Middle East dampened investor sentiment, leading to sell-offs primarily in the semiconductor sector. Additionally, the rebalancing and forced liquidation of single-stock leveraged products triggered circuit breakers on both the KOSPI and KOSDAQ for two consecutive days.
However, the mood shifted dramatically in the latter part of the week. Major tech companies like Microsoft and Amazon maintained their commitment to expanding AI investments, alleviating fears of a slowdown in AI demand. Notably, strong performance in Microsoft’s cloud business and Amazon’s AWS growth led to a surge in U.S. semiconductor stocks, which in turn attracted significant buying interest in domestic semiconductor stocks, including Samsung Electronics and SK Hynix. Foreign investors led the KOSPI rebound on July 31, with net purchases exceeding 7 trillion won in the cash market.
Market analysts suggest that the causes of the recent drop were more related to supply and demand distortions rather than corporate fundamentals. New regulations on the basic deposit for single-stock leveraged products took effect on July 31, and the hedge fund 'Situational Awareness,' which had invested heavily in AI infrastructure-related stocks with high leverage, completed forced liquidations after a margin call, easing selling pressure in the semiconductor sector.
Looking ahead, the performance of U.S. semiconductor companies will be a key variable in determining the continuation of AI investments. AMD is set to announce its second-quarter results on August 5, followed by SanDisk on August 6. If revenues from data centers and AI accelerators, along with guidance for the second half of the year, meet market expectations, it could sustain optimism for increased AI infrastructure investments. Conversely, if results or forecasts fall short, investor sentiment in the semiconductor sector may weaken again. Additionally, key economic indicators such as the U.S. ISM manufacturing index and employment report will be closely watched for their potential impact on future interest rate trajectories.
Analysts believe that much of the valuation burden has been alleviated during the recent drop, suggesting that volatility is likely to decrease gradually. However, macroeconomic factors such as U.S. long-term interest rates and Middle Eastern geopolitical tensions remain potential constraints on market upside.
Na Jeong-hwan, a researcher at NH Investment & Securities, stated, "The earnings uncertainty is significantly easing with the upcoming earnings reports from major tech companies and domestic semiconductor firms. Although the consensus for SK Hynix has been revised downward, the operating profit levels for semiconductor companies are expected to rise steadily on a quarterly basis through next year, indicating that stock prices will rebound based on profit levels rather than growth rates."
Lee Jae-won, a researcher at Yuanta Securities, noted, "Since the causes of the drop were not fundamental, a strategy focusing on undervalued high-performing stocks is effective. While there are still risks of increased volatility due to short-term surges, as well as concerns over oil prices and geopolitical risks in the Middle East, the completion of liquidations by AI hedge funds and the implementation of regulations on single-stock leverage are expected to lead to a normalization of supply and demand."
* This article has been translated by AI.
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