Why we are not calling a bottom after this drop

Today's mood

The Nasdaq and U.S. chip stocks rose overnight, yet KOSPI gave back its two-day rebound in a single session. The index fell 3.73% to 5,552.74 and KOSDAQ fell 3.33% to 781.97.

The drop was led less by semiconductors than by defense, shipbuilding and nuclear power. The sections below walk through why the U.S. rebound did not carry over.

Yesterday's checkpoint, both missed

In yesterday’s piece we said we would watch two things: whether KOSPI stayed above 5,768.01 and whether Samsung SDI held above 592,000 won.

KOSPI closed at 5,552.74, down about 215 points, and Samsung SDI fell 6.08% to 556,000 won. Both lines broke, so the verdict is a miss. We had doubted that a rebound without foreign net buying would last, but the speed of the break was faster than we expected.

New York rose, Seoul fell

On Monday night the Nasdaq Composite rose 1.11% and the S&P 500 rose 0.41%. The Dow slipped 0.07%, close to flat. Seoul Economic Daily reported that the Philadelphia Semiconductor Index also gained 1.61%.

Brokers point to doubt over the profitability of AI investment. Kiwoom Securities analyst Han Ji-young said uncertainty over AI companies’ credit and investment cycle, which began with CoreWeave, was lingering. Investors were also waiting for Meta’s earnings later in the week.

Foreigners and institutions sold together

On KOSPI, individuals net bought 898.8 billion won, foreigners net sold 536.0 billion won and institutions net sold 997.8 billion won (provisional, 16:29). Individuals absorbed more than 1.5 trillion won of selling by foreigners and institutions combined, but it did not stop the fall.

Yesterday institutions bought and individuals sold; today the roles reversed. Dip buying by individuals on a day like this is closer to averaging down losses than a show of conviction, so it is hard to treat it as evidence of a bottom.

Defense fell the most

Of 79 industries, aerospace and defense fell the most at 10.71%. Thirty-one of its 35 stocks fell and only three rose. Energy equipment and services fell 7.87%, oil and gas 7.31% and shipbuilding 6.99%.

The few groups that rose were small, such as household goods at 0.40% and tobacco at 0.36%. Almost every industry moved the same way (industry data from Naver Finance).

Hanwha Aerospace's earnings estimates were cut

Hanwha Aerospace fell 11.71% to 799,000 won. The Korea Economic Daily reported that a weaker dollar and delays in booking export shipments as sales lowered third-quarter expectations, and new orders were also late.

Brokers cut their target prices. DS Investment & Securities went from 1.83 million to 1.65 million won and Korea Investment & Securities from 2.0 million to 1.65 million won; Eugene, Daishin and Hyundai Motor Securities also lowered theirs. DS expects third-quarter operating profit of 980.5 billion won, below the market consensus of 1.18 trillion won.

Hanwha Systems fell the most

Among the stocks we follow, Hanwha Systems fell the most, 13.90% to 70,600 won, and it was also among the most traded by value at 133.9 billion won. It moved with Hanwha Aerospace on the same defense theme.

HD Hyundai Heavy fell 7.96%, EcoPro BM 9.15% and APR 6.49%. Celltrion fell only 0.40% and held up best.

Chips fell less than defense

Samsung Electronics fell 2.98% to 211,500 won and SK hynix fell 4.23% to 1,223,000 won. Daishin Securities analyst Lee Kyung-min said chips held up better than defense, shipbuilding and nuclear power.

SK hynix also carried the controversy over a possible U.S. listing of its subsidiary Solidigm, which Korea Economic Daily said hurt sentiment during the session.

Batteries gave back part of yesterday's surge

Samsung SDI, up 11.7% yesterday, fell 6.08% today to 556,000 won and could not hold yesterday’s 592,000 won close. EcoPro BM fell 9.15% and LG Energy Solution 4.17%.

Yesterday’s trigger was a report that Chinese ESS makers were pulling back from the U.S., and no actual order or earnings confirmation has followed. Today showed again that a price lifted by one report tends to be returned at the same speed.

The won strengthened to 1,327

The dollar fell 0.49% to 1,327 won on the Hana Bank notice. Kiwoom Securities said exporters’ dollar-selling pushed the rate below 1,330.

A stronger won reduces exporters’ earnings when translated into won. Defense stocks cited the same combination of a weaker dollar and delayed revenue booking.

JPMorgan says cheaper, but not yet

In its October 19 report JPMorgan said KOSPI had fallen to an “extremely undervalued” level, and that buying strong enough to call a bottom had not yet appeared. It said AI-related positions were still being unwound and supply-demand imbalances remained.

By Kiwoom Securities’ count, KOSPI’s 12-month forward PER is 4.4x, near historical lows. Excluding chips it is 10.3x, below the 14.5x peak of this year.

The 200-day line is over 800 points away

MoneyToday reported that the 200-day moving average sits in the 6,400s, more than 800 points above today’s close. Most investors who bought in the last 200 trading days are at a loss, so each rebound tends to meet break-even selling.

Shinhan Securities analyst Noh Dong-gil said the market is applying a bigger discount to how long profits last than to their size. Kiwoom’s Han Ji-young named a reclaim of the 200-day line as the key signal of a trend reversal.

October seasonality is weak

Over the last 20 years KOSPI’s October average return is -0.70%, the median is -1.43% and the share of up months is 47% (19 years of data). November averages +0.38% but its median is -1.23%, so neither month has a clear edge.

Seasonality is a reference, not a reason for direction. On a day driven by individual news like today, one number does not explain it.

Two things to check tomorrow morning

First is tonight’s U.S. session and yields. The 10-year Treasury yield was 5.14% on Monday, 0.04 percentage points above Friday’s 5.10%, and Meta reports later in the week. If New York slips again, the pressure on tomorrow’s open grows, since Seoul failed to follow Monday’s rebound.

Second is foreign flows. Foreigners net sold 536.0 billion won on KOSPI today (provisional). Whether they turn to net buying tomorrow, and whether the won holds below 1,330, are the conditions for a bounce.

What we found

Five brokers lowered Hanwha Aerospace’s target price today. The targets are still well above the current 799,000 won, but a target is a forecast, not a fact, and this cut follows lower third-quarter estimates.

Beginner note: a target price is where a broker thinks the stock should trade in about a year. When earnings estimates fall, targets usually follow, so the size of the cut matters more than the cut itself.

On Naver Finance consensus, SK hynix trades at 3.4 times this year’s expected earnings (PER) and Samsung Electronics at 4.7 times. Broker target prices are 166.4% and 134.1% above the current prices.

Beginner note: PER is the share price divided by earnings per share. Memory stocks can look cheapest at the peak of their cycle, so one number alone does not make them cheap.

Among the stocks we follow, Hanmi Semiconductor reports today, Samsung Biologics on October 21, SK hynix and Shinhan Financial on October 27 and Samsung Electronics on October 28. Hanwha Aerospace, where the defense worry sits, reports on October 30.

Sources

• Seoul Economic Daily Korean-language article
• Money Today Korean-language article
• Korea Economic Daily Korean-language article
• Korea Economic Daily Korean-language article
• Korea Economic Daily Korean-language article
• Asia Economy Korean-language article