Analysts warn the KOSPI index could turn volatile if chip sentiment weakens
Samsung Electronics and SK Hynix drive index gains as broader sectors lag.
Although the domestic stock market has been breaking all-time highs day after day, ushering in the “KOSPI 7000 era,” concerns are growing in the market that the upward momentum is concentrating in the semiconductor sector rather than spreading across the broader market.
With semiconductor and artificial intelligence (AI)-related stocks centered on Samsung Electronics and SK Hynix essentially leading the index’s rise, critics point out that most other sectors are being left out of the upward trend.
Some warn that should investor sentiment toward semiconductors weaken, overall market volatility could expand sharply, given the market’s excessive dependence on a specific sector.
According to the Korea Exchange on May 11, the KOSPI broke above 7000 last week and continued its steep upward momentum. The move was driven by a combination of expanding global AI investment, strength in U.S. technology stocks, and foreign capital inflows, which spread risk-asset appetite across the domestic stock market. In particular, buying was concentrated in semiconductor-related shares as investors were also gripped by anxiety about being left behind in the rally, so-called “FOMO (Fear Of Missing Out).”
Experts analyze that the domestic stock market is currently sustaining its steepest rally since the dot-com bubble. In fact, the KOSPI has risen 188% from its low over the past year, the largest gain since July 1999 (253%).
However, as the market’s sharp rally continues, caution about concentration in specific sectors is also growing. While the broader market appears strong on the surface, it is pointed out that in reality a handful of technology and AI-related stocks are leading the index higher, while a significant number of individual stocks continue to underperform on a relative basis.
In fact, earnings forecasts for the domestic semiconductor sector this year are being revised sharply upward. According to FnGuide, a financial data firm, the combined operating profit forecast for major domestic semiconductor companies is estimated to increase 70.5% compared to the previous year. In particular, as expectations grow for expanding demand for High Bandwidth Memory (HBM) and AI server memory, a structure is forming in which expectations for earnings improvement at Samsung Electronics and SK Hynix are lifting the entire market.
The problem is that this upward momentum has failed to spread to the broader market. Securities industry insiders estimate that semiconductor stocks now account for close to the high 60% range within KOSPI market capitalization. Meanwhile, the KOSPI index excluding semiconductors is estimated to be at only around the 4,100 level. This is why assessments are emerging that while the index is hitting all-time highs, the actual experience felt by investors remains limited.
Temperature differences by sector are also pronounced. According to Eugene Investment & Securities, sectors that hit new highs this year account for only about one-third of the total market. In contrast, many traditional growth sectors including consumer stocks, biotech, internet, and gaming continue to underperform.
The KOSDAQ market is also relatively sidelined. The KOSPI’s trading value growth rate this year reached 64.6% compared to the previous year, while the KOSDAQ’s trading value growth rate reached only 19.9%. This is interpreted to mean that liquidity is effectively concentrating around large-cap semiconductor stocks on the KOSPI.
There is also analysis in the market suggesting that the current rally resembles past upswings driven by specific sectors. Just as IT stocks led during the internet bubble and battery-related stocks led during the secondary battery bull market, semiconductor and AI-related stocks are now effectively determining the market’s direction.
Daishin Securities and SK Securities released reports on the 11th analyzing recent trends in the domestic stock market. Jo Jun-gi, a researcher at SK Securities who authored the report, said, “Global markets including South Korea and the United States have continued to see an extremely strong rally concentrated in the IT sector, sustaining a new-high rally,” and added, “The KOSPI has quietly climbed to the 7,500-point level.” However, the securities industry defined this phenomenon as a “rich-get-richer, poor-get-poorer” dynamic and an “extreme semiconductor concentration phenomenon.”
Lee Gyeong-min, a researcher at Daishin Securities, noted, “The KOSPI’s runaway rally has resumed as Samsung Electronics and SK Hynix, in a pattern that has repeated monthly, surged sharply,” and pointed out, “In the short term, there is a need to prepare for a rotational market phase following the semiconductor surge and concentration that has repeated at the start of each month.”
The semiconductor concentration phenomenon is directly translating into neglect of small- and mid-cap stocks and the KOSDAQ.
Researcher Jo Jun-gi said, “While the domestic stock market continues to show extreme strength in terms of index returns, the divergence in relative strength between the KOSPI and KOSDAQ is extreme,” and noted, “Concentration into large-cap stocks within the KOSPI is also extreme.” In fact, the KOSPI rose 13.6% last week while the KOSDAQ gained only 1.3%. Furthermore, large-cap KOSPI stocks rose 15.2%, while mid-cap KOSPI stocks rose 1% and small-cap stocks fell 1.5%. On the KOSDAQ, large-cap stocks gained only 2.3% and small-cap stocks rose only 0.2%.
SK Securities researcher Jo Jun-gi analyzed, “The dominant trading pattern in the current market is one driven by two mega-cap stocks, Samsung Electronics and SK Hynix,” and explained, “Price swings are occurring aggressively in large-cap stocks due to the expansion of the domestic exchange-traded fund (ETF) market and its shift to becoming the primary trading instrument, with ETF trading value as a share of KOSPI trading value rising from around 30% in the early 2020s to the 50-60% range.” He further noted, “For small- and mid-cap stocks, while individual names may show high volatility, when viewed as an overall basket they are likely to move flatly whether the market is rising or falling.”
However, experts warn that market risk could also rise sharply if dependence on specific sectors becomes excessive. In particular, they point out that it is difficult to rule out the possibility that the entire index could be simultaneously rattled if unexpected negative factors emerge for key stocks such as Samsung Electronics or SK Hynix.
Daishin Securities researcher Lee Gyeong-min said, “There is a need to be wary of overheating pressure resulting from such a strong short-term rally,” and explained, “Despite continued upward revisions to earnings forecasts, semiconductor, IT, and machinery sectors could enter a phase of digesting selling pressure following the sharp stock price surge.”
Eugene Investment & Securities researcher Heo Jae-hwan said, “Most sectors outside of semiconductors are failing to keep pace with the KOSPI’s gains,” and added, “Even if the war concludes, the sidelining of consumer stocks and the KOSDAQ is likely to continue through the first half of the year, so caution is needed when approaching industries with limited relevance to AI data centers.”
While the positive view on the domestic stock market remains valid, experts emphasize the need to also factor in concerns about the pace of short-term gains.
Researcher Heo added, “The more critical risk factor to watch is the possibility of a slowdown in semiconductor exports,” and said, “While exports and earnings will increase, the base effect on growth rates is likely to gradually weaken from the second to third quarter onward.”
Yoon Young-sil
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