Korean Stocks Drift in a Vacuum as Kospi Faces V-Shaped Rebound or L-Shaped Stall

Supply gap widens as retail and foreign investors stay on the sidelines

Shareholder returns from chip heavyweights seen as turnaround catalyst

South Korea’s stock market has slipped into a tedious sideways pattern. The Kospi surged 17.91% on July 31, fueling hopes of a rebound. But the benchmark has remained stuck in the 6,000 range as both retail and foreign investors hold back and large shareholder return announcements from the country’s two semiconductor giants have yet to materialize. That has left the market at a crossroads between a V-shaped recovery and an L-shaped period of stagnation.

The Kospi closed at 6,258.77 on Aug. 7, extending its losing streak to seven straight weeks, according to the Korea Exchange. It was the first time since December 2022 that the index had fallen for nearly two months, when the Federal Reserve’s fourth consecutive jumbo rate hike overlapped with the Legoland debt-market shock.

The market’s lack of direction largely reflects a wait-and-see stance by both retail and foreign investors. Investor deposits, a measure of cash on the sidelines, fell to a daily average of 105 trillion won in August from 129 trillion won in June. Margin loan balances, a gauge of leveraged retail trading, dropped to 28 trillion won from 38 trillion won. Foreign investors, who posted a record net purchase of 8.5703 trillion won on July 31, switched to net selling of 7.1821 trillion won last week.

Market professionals cited three key catalysts that could end the trading range: proof that artificial intelligence companies can turn profits, stability in the yield on the US 10-year Treasury, and shareholder return plans worth hundreds of trillions of won from the two semiconductor leaders. The details could be announced as early as late August. With the two companies’ combined free cash flow forecast to exceed 300 trillion won this year, some expect shareholder return programs of roughly 150 trillion won to 180 trillion won. The head of one asset manager said the leading chip stocks need to show a clear commitment to shareholder returns to reverse investor caution.

Lee Sun-a, Hankyung.com reporter suna@hankyung.com