[Edaily Reporter Kim Kyung-eun ] Amid the KOSPI’s sharp plunge of more than 20% over the past seven trading days, forecasts suggest a short-term rebound is on the horizon. With the likelihood of a technical rebound now outweighing the risk of further declines, analysts say the 5,100 level could serve as the index’s support level.

Han Ji-young, an analyst at Kiwoom Securities, stated in a report on the 16th, “Considering past instances of sharp declines, we are now in a range where the expected value of a technical rebound has significantly increased relative to the risk of further declines,” adding, “We believe the 5,100 level, which corresponds to a forward price-to-book ratio (PBR) of 1.0, will serve as the index’s support level.”

The previous day, the KOSPI closed at 5,554.22, plunging 7.57%. A circuit breaker was even triggered during the session as uncertainty over U.S. inflation, concerns about the profitability of artificial intelligence (AI) investments, and consecutive net selling by foreign investors all converged. The KOSDAQ index also fell 7.65%.

The KOSPI has recently fallen for seven consecutive trading days, with a cumulative decline of 20.8%. This marks the third-largest drop over a seven-trading-day period since 2005. Kiwoom Securities noted that short-term price recoveries have typically followed similar sharp declines in the past.

It was expected that the domestic stock market would attempt a rebound that day. This was based on the fact that U.S. stocks had successfully rebounded overnight, buoyed by falling Treasury yields, and that KOSPI overnight futures were trading 3.9% higher. The U.S. Dow Jones Industrial Average rose 1.1%, the S&P 500 index rose 0.3%, and the Nasdaq index rose 0.1%. The Philadelphia Semiconductor Index fell 0.9% but narrowed its losses during the trading session.

However, analysts say it remains uncertain whether this technical rebound will lead to a trend reversal. This is because funding pressures and concerns over investment profitability in the AI sector have not been resolved, and there remains a possibility that the unwinding of margin trading leverage and panic selling by investors could trigger further declines.

One analyst noted, “It is a relief that the volatility in AI and semiconductor stocks has subsided following positive comments from NVIDIA CEO Jensen Huang regarding CoreWeave’s financial situation,” but added, “His remarks alone are insufficient to fully alleviate concerns about the profitability of AI investments and financial soundness.”

In particular, the analyst noted that it is difficult to conclude that the potential for further declines is limited based solely on the KOSPI’s current low valuation. The KOSPI’s 12-month forward price-to-earnings ratio (P/E ratio) stands at 4.24x, the lowest level since 2000. However, given that the market does not fully trust the high earnings estimates centered on the semiconductor sector, it remains uncertain whether past P/E lows will continue to serve as valid support levels.

Accordingly, Kiwoom Securities estimated the index’s lower bound using the price-to-book ratio (PBR), which is relatively less sensitive to changes in earnings forecasts. Applying a forward PBR of 1.0x—which values expected equity over the next 12 months at book value—the lower bound of the KOSPI is calculated at the 5,100 level.

However, this figure is based on the assumption that current corporate earnings forecasts remain intact and that no structural erosion of profitability occurs. If concerns over credit risks and reduced investment among AI-related companies lead to an actual deterioration in earnings, the lower-bound estimate could also change.

The third-quarter earnings announcements by U.S. Big Tech companies scheduled for this month were cited as a key factor that will determine the future direction of the stock market. Analysts note that it is necessary to assess whether increased AI investment is actually translating into profits and to gauge the extent of companies’ financing burdens.

One analyst stated, “At the 5,100 level on the KOSPI, rather than betting on the risk of further declines, a valid strategy is to focus on recovering from the recent sharp drop while monitoring the third-quarter earnings season to see if earnings reliability is restored and concerns over AI stocks are alleviated.”