[Edaily Kim Kyung-eun Reporter] The KOSPI continues to fluctuate as it nears the 7,000 mark. While NVIDIA’s strong earnings—which demonstrated the growth potential of artificial intelligence (AI)—pushed the index higher, the Bank of Korea’s decision to raise the benchmark interest rate appears to be capping its upside. Analysts in the securities industry predict that, with AI and semiconductor earnings providing support from the bottom, the direction of domestic and international interest rates will determine whether the KOSPI can settle above the 7,000 mark in September.

According to MP Doctor, the KOSPI closed at 6,912.37 on the 27th, up 104.16 points (1.53%) from the previous trading day. Buoyed by NVIDIA’s strong earnings, the KOSPI surged 2.76% to 6,996.12 immediately after the market opened, but later fell to as low as 6,841.88 during the session. This was due to weakened investor sentiment following the Bank of Korea’s Monetary Policy Committee’s decision that morning to raise the benchmark interest rate by 0.25 percentage points from 2.75% to 3.00% annually.

Securities analysts believe there is a high likelihood that domestic interest rate hikes and rising U.S. long-term interest rates will cap the index’s upside for the time being. Rising interest rates act as a factor that lowers stock valuations by increasing the discount rate used to convert future earnings into present value. Growth stocks, in particular—which tend to reflect growth expectations in their stock prices ahead of time—are more sensitive to rising interest rates.

Hwang Soo-wook, an analyst at Meritz Securities, noted, “The primary market driver is interest rates,” adding, “The sharp rise in U.S. long-term interest rates is a concern.” He further predicted, “It will be difficult to expect further valuation expansion in global risk assets until U.S. long-term interest rates stabilize.”

However, expectations for profit growth in the semiconductor sector are cited as a factor that could support the index’s downside. NVIDIA’s earnings, which exceeded market expectations, also bolster these expectations. On the 26th (local time), NVIDIA reported revenue of $96.22 billion for the second quarter of its fiscal year (May–July), a 106% increase year-over-year, surpassing market forecasts. The company also projected revenue of $108 billion for the third fiscal quarter, exceeding market forecasts. This is seen as reaffirming that investment in AI infrastructure and the growth in semiconductor demand are continuing.

Ultimately, the direction of the KOSPI in September is expected to be determined by the tug-of-war between profit growth in the AI and semiconductor sectors and domestic and international interest rates. This means that while corporate earnings are supporting the index’s floor, the extent to which interest rates open up the valuation ceiling will determine the scope of further gains.

In the U.S., interest rate volatility is expected to continue in September as factors pushing up long-term rates—such as the burden of Treasury supply due to the budget deficit—clash with rate-stabilizing policies like the Treasury’s bond buybacks. Key variables that will determine the direction of long-term rates include the Jackson Hole symposium, the scale of long-term bond buybacks, the September Federal Open Market Committee (FOMC) meeting, and the situation in the Middle East.

The possibility of an additional hike in the domestic policy rate is gaining traction. According to the dot plot of conditional interest rate projections for the next six months released by Monetary Policy Committee members today, 10 out of 21 projections were at 3.25%, while 6 were at 3.50%. However, as it is necessary to assess the effects of two consecutive hikes, the pace of further increases is expected to be gradual.

Semiconductors are still seen as the leading sector once interest rates stabilize. Kim Joong-won, an analyst at Hyundai Motor Securities, stated, “We believe the recent rise in U.S. long-term interest rates was largely driven by the widening of the term premium due to fiscal and monetary policy uncertainties,” adding, “Once uncertainty eases, we expect the investment appeal of U.S. long-term Treasury bonds and high-growth stocks in AI and semiconductors—which offer strong earnings visibility—to improve.”

Byeon Jun-ho, an analyst at IBK Investment & Securities, “While concerns about the AI and semiconductor industries are expected to ease somewhat due to factors such as NVIDIA’s strong earnings, caution regarding increased market volatility will persist as concerns about an economic peak emerge,” he added. “In September, the domestic stock market is likely to continue trading within a narrow range, influenced by signs of an economic slowdown, the U.S.-China summit, the U.S. midterm elections, and the fact that third-quarter earnings have already been largely priced in.”