In July, the domestic stock market has faced renewed volatility. Concerns over worsening conditions in the Middle East and fears of a so-called 'peak-out' in the semiconductor industry have contributed to this instability. Major semiconductor stocks, including Samsung Electronics and SK Hynix, have experienced significant fluctuations. The Philadelphia Semiconductor Index and key tech stocks in the U.S. have also declined, leading to a rapid cooling of investor sentiment. There are growing worries that the rally driven by AI may be coming to an end.
However, it is premature to directly link market anxiety to a trend of sustained decline. The Bank of Korea reported on July 9 during a parliamentary briefing that profit forecasts for semiconductor companies are still being revised upward, and the government continues to improve capital market regulations, suggesting that the domestic stock market is unlikely to enter a prolonged downturn. Recent stock price adjustments have largely been attributed to foreign investors realizing profits and portfolio rebalancing at the end of the quarter.
In fact, it is too early to conclude that the fundamentals of the semiconductor industry have deteriorated sharply. The competition for AI investment is still ongoing, and demand for advanced memory, including high-bandwidth memory (HBM), remains robust. It is more accurate to view the AI investment cycle as entering a phase of 'normalization' rather than having 'ended.' Over the past two years, stock prices of AI-related companies have surged, reflecting future growth expectations. Now, the market is beginning to scrutinize actual investment results and profitability rather than mere expectations. This natural process of distinguishing between winners and losers occurs as the AI industry matures. Therefore, the recent stock price adjustments can be seen as a correction of previously inflated expectations rather than a sign of deteriorating performance.
Moreover, the KOSPI index has been on a rapid ascent. While there have been improvements in corporate earnings, the interplay of liquidity, policy expectations, and the AI boom has led stock prices to outpace actual performance. Given the heightened valuation pressures on the KOSPI, even minor negative news can trigger profit-taking. Analysts suggest that the current adjustment reflects a necessary correction of the market's overheated expectations.
That said, it is too early to be completely reassured. The Bank of Korea has warned that high volatility may persist due to changes in expectations surrounding the AI industry, major countries' monetary policies, and global capital flows. With uncertainty surrounding the U.S. Federal Reserve's interest rate path and fluctuating risk appetite among global investors, even minor doubts about the pace of AI investment can lead to rapid capital shifts, particularly in tech stocks. For the time being, the domestic stock market is unlikely to be free from these external variables.
Nevertheless, the government should not remain passive. Many view the current stock market as akin to a 'gambling table,' and this perception is repeatedly reflected in market behavior. There needs to be a strategy to encourage short-term traders to adopt a long-term investment approach. During the preparation of the July tax reform plan, discussions on tax credits for long-term investors could be beneficial.
Investors should also be cautious about reacting too emotionally to short-term fluctuations. Rather than attempting to predict volatility, it is advisable to base investments on a company's competitiveness and long-term growth potential. Selling in fear and jumping in late during rebounds can ultimately lead to greater losses.
The stock market constantly oscillates between expectations and concerns. The key is not to be swept away by vague fears but to calmly assess fundamentals and enhance the market's structural competitiveness. While volatility is unavoidable, it is crucial for both the market and investors to return to basics during turbulent times.
* This article has been translated by AI.
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