South Korean Stock Market Weak Despite Samsung Electronics' Profits... Diverging 'Profit Stability' from Taiwan's TSMC

The South Korean stock market is passing through a difficult period, with the 6,000 level collapsing. Despite Samsung Electronics enjoying a semiconductor boom by recording massive quarterly profits exceeding 10 billion won, analyses are emerging regarding why only the South Korean market is showing particular weakness.

According to the analysis provided by Dr. Hong Chun-uk, the vulnerability of the South Korean market stems from an excessive concentration on the semiconductor sector. The market structure is overly skewed toward two companies, Samsung Electronics and SK hynix. In particular, since the profits of these companies are largely triggered by price increases rather than increases in sales volume, they possess a structural limitation that makes them inevitably sensitive to changes in the external environment or market trends.

Short-term variables are also pressuring the market. There are concerns that the Chinese company CXMT is emerging as a threat to South Korean semiconductor companies by releasing new products. From a financial market perspective, the analysis suggests that supply and demand imbalances are appearing, such as foreign investors showing selling trends to seek exchange gains as the Korean won shows relative strength amid the strong dollar.

The decisive difference between TSMC and South Korean semiconductors: 'Revenue Visibility'

Regarding why the Taiwan stock market is moving differently from South Korea during the semiconductor boom, the difference in TSMC's business model is cited as the key. Unlike Samsung Electronics and SK hynix, which are centered on memory semiconductors, TSMC is a foundry (contract manufacturing) company that produces products for its customers.

Dr. Hong noted that TSMC maintains solid relationships with its customers based on its overwhelming market share and high yield. Due to the nature of the foundry business, relationships with existing customers are the core of revenue, and TSMC holds an advantage over competitors in this regard. Furthermore, Dr. Hong explained that because Taiwanese companies such as MediaTek hold high positions across the entire supply chain for electrical and electronic component parts, they have higher revenue visibility and profit stability compared to the South Korean market.

"Responses should differ depending on investment style... Rebalancing timing may arrive"

Regarding the attitude investors should take in a situation where the market is plunging, Dr. Hong advised checking one's 'investment style' first. He stated that the responses of momentum investors, who follow market trends, and asset allocation investors, who emphasize asset distribution, should be completely different.

First, for momentum investors, he diagnosed that it is difficult to maintain a high weight in the current South Korean market. This is because the speed of upward revisions in corporate profit forecasts has slowed significantly compared to the first half of last year. Additionally, with more than 150 trillion won of funds from individual investors who entered at over 7,000 points, the analysis suggests that supply pressure, where selling occurs whenever the index rises, is fueling the market decline.

On the other hand, for asset allocation investors who believe that market prices will eventually return to their fair value, now could be the timing to prepare for rebalancing. Dr. Hong predicted, "While market momentum is very weak, if additional declines appear in the market, asset allocation investors may engage in rebalancing investments."

Source: original video (YouTube)