KOSPI rebounds after Solidigm IPO suspension… FOMC and earnings in focus

The KOSPI index fell by 2% after experiencing sharp fluctuations last week amid controversies over the profitability of artificial intelligence (AI) investments and the re-escalation of armed conflict in the Middle East. This week, the Federal Open Market Committee (FOMC) meeting and Israel's general election are scheduled, followed by the third-quarter earnings releases from SK Hynix and Samsung Electronics. Interest rates, international oil prices, and semiconductor performance are expected to determine the direction of the stock market.

According to Korea Exchange on the 25th, the KOSPI index closed at 5550.30 on the 23rd, down 117.75 points (2.08%) from Jeonju. Gains and losses alternated over the five-day period, and a buy-side sidecar (futures market circuit breaker) was triggered in the KOSPI market on the 21st. Retail investors and foreign investors made net sales of 1.1021 trillion won and 719.9 billion won, respectively, while institutional investors made net purchases of 419 billion won. Foreign investors made net sales of SK Hynix worth 863.7 billion won, while making net purchases of Samsung Electronics worth 783.8 billion won.

The burden of AI investment by major U.S. tech companies fueled stock market volatility last week. Meta's third-quarter revenue increased by 26% year-on-year, but its free cash flow (FCF—the amount of cash generated from operating activities minus capital expenditures) turned into a deficit of $2.12 billion due to large-scale capital investments. Concerns grew over whether AI capital investment could continue to expand amid high oil prices and rising market interest rates, causing the NASDAQ index to fall by 2.60% on the 22nd (local time). This was the largest drop since June this year.

On the 23rd, domestic semiconductor stocks rebounded after SK Hynix announced it would suspend its consideration of a U.S. NASDAQ listing for its grandchild company, Solidigm. As concerns over shareholder value dilution from the grandchild company's listing eased, SK Hynix closed at 1,277,000 won, up 4.42% from the previous day. Samsung Electronics also ended trading at 215,500 won, up 0.47%. On that day, the KOSPI closed with a 0.3% gain.

Events that could impact the domestic stock market are also scheduled for this week. The Federal Reserve System (Federal Reserve) will hold its FOMC meeting on the 27th and 28th (local time). According to analysis by NH Investment & Securities, the probability of an interest rate freeze at this meeting, as reflected in the Chicago Mercantile Exchange (CME) FedWatch, is 85.6%. The market is paying close attention not just to the interest rate decision itself, but to how much the Federal Reserve will leave open the possibility of additional rate hikes after December.

SK Hynix will release its third-quarter earnings on the 28th, and Samsung Electronics will announce its finalized third-quarter results on the 29th. At the earnings briefing, market attention is focused on whether plans for future AI semiconductor demand and capital investment, as well as additional shareholder return measures such as share buybacks, will be disclosed.

Stock prices have undergone significant corrections, resulting in a state of low price burden, according to analysis. Kim Dong-won, head of the Research Division at KB Securities, stated, "The KOSPI appears to have passed through the peak of concerns after forming two lows on July 29 (5262) and October 15 (5450), confirming a W-shaped bottom." He added, "The valuations of the KOSPI, Samsung Electronics, and SK Hynix have entered a historically undervalued range below levels seen during past financial crises. Additionally, U.S. 10-year Treasury yields appear to have formed a short-term peak in the mid-5% range, suggesting that the pace and slope of future interest rate increases are likely to be gradual."

However, it is noted as a burden that large volumes of selling from investors who bought at high prices during the rebound could be released, given that the index has fallen significantly from its peak. The current level of the KOSPI index is down 40.86% from the all-time high (9385.59) recorded intraday in June last month.

The Middle East situation could also increase stock market volatility. Na Jeong-hwan, a researcher at NH Investment & Securities, commented on Israel's general election on the 27th (local time) and the U.S. midterm elections on November 3 (local time), stating, "Both elections are major political events that will influence the direction of the Iran war and the continuation of military operations." He added, "In particular, whether the U.S. and Israel expand their military operations against Iran after the elections is expected to act as a key variable for international oil prices and Middle East geopolitical risks."