Jeong Mu-il, Chief Investment Officer at Trustone Asset Management, analyzed the recent Korean stock market volatility in an interview, attributing the KOSPI's nearly 30% drop from its intraday all-time high of 9385.59 to excessive concentration in Samsung Electronics and SK Hynix rather than fundamental economic deterioration. Jeong stated that the two semiconductor giants plus their affiliates represent approximately 60% of KOSPI market capitalization, creating systemic vulnerability when combined with leverage ETF flows. The concentration risk materialized as a structural problem when semiconductor sector concerns triggered disproportionate market-wide selling, amplifying volatility to levels typically seen during financial crises despite stable underlying economic conditions including interest rates and corporate earnings.
KOSPI Dropped Nearly 30% From All-Time High Due to Concentration Risk
Jeong explained that KOSPI's decline to levels comparable to system risk events like the 2008 global financial crisis or COVID-19 occurred despite intact fundamental conditions. He stated that interest rates and corporate earnings remained largely undamaged, but investor sentiment weakened due to semiconductor peak concerns and geopolitical uncertainties. The market's structural issues, particularly concentration in specific stocks, amplified the adjustment beyond normal levels.
Regarding leverage ETFs, Jeong noted that while proving exact causality is difficult, these products had substantial impact. He provided a hypothetical calculation suggesting that without leverage ETFs, Samsung Electronics and SK Hynix would have declined only 17% and 20% respectively, which would have been considered normal corrections.
Samsung Electronics and SK Hynix Represent Over Half of KOSPI Market Cap
Jeong detailed that Samsung Electronics and SK Hynix alone account for over half of KOSPI market capitalization. Including affiliates, the proportion reaches approximately 60%, and when expanding to the entire AI value chain including semiconductor equipment, materials, and power equipment, over 70% of the market connects to essentially one industry. He stated that such concentration in a single industry is rare globally, making the entire market vulnerable to even minor negative news.
On the emergence of Chinese competitor Kimi K3, Jeong distinguished between AI "spenders" (OpenAI, Google, major Chinese AI firms) and "enablers" (semiconductor and power equipment suppliers). He stated that Samsung Electronics and SK Hynix supply semiconductors while Korean power equipment and cable companies provide necessary equipment for AI data center construction, suggesting Kimi K3's rise could be positive for Korean enabler companies. He acknowledged long-term competitive dynamics may change but stated that current AI market focus on high-performance memory and advanced processes means the technology gap prevents Chinese firms from immediately threatening Samsung and SK Hynix growth trajectories.
Jeong Forecasts Year-End KOSPI at 9000
Jeong revised his year-end KOSPI forecast to 9000 from a previous 11000, reflecting the recent correction. He identified interest rates as the key variable for the second half, explaining that rising funding costs would slow investment pace for AI-competing companies, which would then impact enabler industries like semiconductors and power equipment.
He stated that upcoming US big tech earnings reports starting with Alphabet are the most important events to watch. If Alphabet, Microsoft, and Amazon maintain or expand AI investment plans, concerns about semiconductor sector peaks could be substantially resolved. For Samsung Electronics, he highlighted new shareholder return policy guidelines as a key point, noting the current three-year policy expires this year. For SK Hynix, he noted investor interest in how much detail the company provides about long-term supply agreements (LTA) with customers, following Micron's relatively detailed disclosures.
Cosmetics and Banking Sectors Recommended for Investment
Jeong recommended focusing on industries with improving earnings, specifically highlighting cosmetics. He stated that with the industry growing 30-40% while trading at price-to-earnings ratios around 10x, the sector offers attractive valuations. He mentioned brand companies like APR and Dalba Global, ODM manufacturers like Kolmar Korea and Cosmax, and overseas distribution companies like Silicone2.
He also expressed positive views on banking stocks due to steady profit growth and expected shareholder returns. Regarding securities stocks, he noted that while volatility exists depending on market conditions, recent corrections have substantially reduced valuation burdens. Jeong advised investors to "buy and go on summer vacation," suggesting that in high-volatility markets, constantly monitoring prices only increases anxiety, and waiting for corporate earnings confirmation would be more prudent.
FAQ
What caused the KOSPI to drop nearly 30% from its all-time high?
According to Jeong Mu-il of Trustone Asset Management, the drop resulted from excessive concentration in Samsung Electronics and SK Hynix rather than fundamental economic problems. The two companies plus affiliates represent about 60% of KOSPI market cap, and when including the broader AI value chain, over 70% of the market connects to one industry. This concentration made the market vulnerable when semiconductor sector concerns emerged, amplified by leverage ETF flows.
Which sectors does Jeong recommend for Korean stock investors?
Jeong specifically recommended cosmetics and banking sectors. He stated the cosmetics industry is growing 30-40% while trading at price-to-earnings ratios around 10x, making it attractive. He mentioned companies including APR, Dalba Global, Kolmar Korea, Cosmax, and Silicone2. For banking stocks, he cited steady profit growth and expected shareholder returns as positive factors.
