[Edaily Reporter kyoungeun kim ] As the KOSPI has slipped below the 5,000 mark, an analysis suggests that even assuming a significant decline in semiconductor windfall profits, there would be little difference from current stock prices. The assessment is that since the weakening business conditions have already been largely factored into stock prices, the market could rebound from current levels sooner than expected if credit risks for AI infrastructure companies decrease and hyperscalers demonstrate profitability.

Noh Dong-gil, an analyst at Shinhan Investment Securities, stated in a report titled “Five Questions for the KOSPI at 5,000” released on the 20th, “Although semiconductor profit forecasts are rising, stock prices have fallen sharply, and most of the decline stemmed from a contraction in price-to-earnings multiples.” From the 23rd of last month to the 19th of this month, the stock prices of SamsungElectronics(005930)and SK hynix(000660) fell by 23.6% and 31.4%, respectively, while their 12-month forward earnings per share (EPS) actually rose by 1.8% and 3.3%. The forward price-to-earnings (P/E) ratios fell to 3.4 times for SamsungElectronics and 2.9 times for SK hynix.

Analyst Noh explained, “The market is currently applying a greater discount based on how long profits can be sustained rather than the size of those profits,” adding, “The trigger is anxiety over funding for AI investments.” CoreWeave’s 5-year credit default swap (CDS) premium surged from 469 basis points (1 bp = 0.01 percentage point) on June 22 to 1,113 basis points on the 16th of this month. He said, “Even if AI demand increases, whether funding will be available to build data centers and purchase graphics processing units (GPUs) and memory is perceived as a separate issue,” adding, “High margins on memory translate into high investment costs for customers, so when customers review the efficiency of their capital expenditures, not only volume but also prices become subject to renegotiation.”

However, he noted that physical market indicators remain strong. The DRAM Spot Price Index (DXI) hit a year-to-date high on the 16th, and the 12-month forward EPS for the semiconductor index is 3.1% higher than it was on the 23rd of last month. Analyst Noh analyzed, “In 2018, stock price peaks preceded profit peaks by nine months,” adding, “The current low P/E ratio reflects both undervaluation and caution regarding the peak of excess profits.”

He viewed the essence of foreign selling as a reduction in exposure to memory sector excess profits rather than a reduction in their overall weighting in the Korean market. From the beginning of the year through the 19th of this month, foreign investors made net sales of 207.5 trillion won on the KOSPI, of which the semiconductor sector accounted for 185.2 trillion won (89.3%). The 25.9 trillion won in net selling by foreign investors since the 28th of last month was absorbed by “other corporations” (13.5 trillion won), presumed to be buying back their own shares, and individual investors (11.3 trillion won). Researcher Noh expressed concern, stating, “Buybacks are subject to limits,” and added, “SK hynix’s 40 trillion won buyback program is estimated to have only about 1 trillion won remaining, so it could be exhausted as early as this week; as the supply of buyback shares decreases, the burden on retail investors to absorb selling pressure will increase.”

He assessed that the medium-term trend has been compromised. On the 19th, the KOSPI stood at 5,768, 10.2% below its 200-day moving average (6,420). An analysis of the 24 instances since 1990 in which the KOSPI remained below its 200-day moving average for 10 or more trading days showed that the median return over the following three months was 0.8%, and 4.6% over six months. Researcher Noh advised, “Rather than increasing exposure during the initial rebound, it is preferable to expand positions after the market successfully retests the low,” adding, “Participate only moderately in oversold rebounds, but for medium-term position increases, you must confirm that selling pressure has been absorbed and that the bottom has been raised.”

He identified the shareholder return announcement at the end of October as a short-term inflection point. SK hynix has a policy of returning more than 50% of its cumulative free cash flow (FCF) from 2025 to 2027. Shinhan Investment Securities estimated that, excluding the existing 40 trillion won in share buybacks and dividends, additional funds available for shareholder returns—based on consensus estimates—amount to 193 trillion won. The company plans to announce the scale and method of additional returns during its third-quarter earnings release on the 28th. SamsungElectronics will also decide on the details of its third-quarter dividend, totaling approximately 30 trillion won, at a board meeting later this month. Analyst Noh stated, “Share buybacks, which are executed immediately, are the most direct way to stabilize prices in the short term,” adding, “Returns to shareholders will establish a bottom, and confidence in earnings will determine the trend.”

Shinhan Investment Securities recalculated the KOSPI index based on the assumption that semiconductor excess profits will normalize. The analysis considered three scenarios in which the operating profit margins of SamsungElectronics’ DS division and SK hynix for next year would fall to 50%—the level seen during past booms—as well as to lower levels of 40% and 30%. Under the base scenario (40%), the KOSPI was calculated at 5,460 points, with SamsungElectronics at 205,000 won and SK hynix at 1,041,000 won. With an operating profit margin of 50%, the KOSPI would be 6,360, and at 30%, it would be 4,710.

He predicted, “Since the figures—which were calculated after factoring in a significant portion of excess profits and margin declines—are not significantly different from the current index levels, current stock prices have already largely reflected the weakening business conditions.” He added, “Once the credit risk associated with U.S.-based NeoCloud decreases and hyperscalers demonstrate their profitability, stock prices could rise above current levels sooner than expected.”