Kospi’s 28% Drop in a Month Makes V-Shaped Rebound Unlikely

South Korean stocks have plunged over a short period, but a V-shaped rebound will be difficult, according to a brokerage report. The call rests on a shift by central banks toward tighter monetary policy and persistent concerns over whether big tech companies will maintain artificial intelligence spending, a key source of demand for semiconductor makers.

Hur Jae-hwan, an analyst at Eugene Investment & Securities, wrote in a July 27 report that the Kospi slid 28.5% to 6,516 on July 20 from 9,114 on June 21. He said the drop was the biggest since the Covid-19 selloff of 36%, the 2022 US rate-hike cycle of 31% and the 2008 global financial crisis of 54%.

Eugene Investment & Securities said stock markets have followed two paths after sharp selloffs. During the pandemic, equities rebounded quickly after the plunge. In 2022, the market fell 35% over 14 months and then took a long time to find a bottom. The Kospi’s slide since June resembles the rapid Covid-era selloff, but the firm does not expect a sharp rebound.

One reason is that central bank policy is markedly different from the Covid period. Hur wrote that expectations for further rate increases by the Bank of Korea are much stronger than those for the US Federal Reserve. Even if domestic stocks have already bottomed, he said it would take about a month to recoup losses quickly.

Concerns over slowing profit margins and deteriorating cash flow at big tech companies that buy South Korean semiconductors are also set to constrain a recovery in equities.

Hur wrote that Alphabet posted strong earnings last week, but its operating margin slowed to 34.2% from 36.6% in the first quarter. Free cash flow also turned negative for the first time, fueling doubts about the durability of capital spending.

Hur also said investors need to consider the impact of single-stock leveraged exchange-traded funds. Trading value in Samsung Electronics single-stock leveraged ETFs has fallen back to levels seen before their May 27 launch. But turnover in SK Hynix leveraged ETFs has not declined. Trading value in those SK Hynix products has exceeded turnover in the underlying shares, indicating the aftereffects of leverage have yet to fade.

He added that the Kospi's 12-month forward price-to-earnings ratio excluding semiconductor stocks has fallen to 7 to 8 times, the lowest since April 2025. The recent drop in share prices has been unusually steep, so downward pressure on South Korean equities should gradually ease, but a clear recovery will take time.

Ko Jeong-sam, Hankyung.com reporter, jsk@hankyung.com