[R&E] KOSPI Closed for Constitution Day After a 6.37% Drop, BOK Hikes Base Rate for the First Time in 3 Years and 6 Months Amid Semiconductor Sell-offs

[R&E: Research & Epoch] This is News Epoch's signature report that oversees a new era of investment through an integrated analysis of global financial data and domestic securities firms' research.

Global Market Brief

Last Friday, the New York stock market closed lower amid profit-taking pressure centered on tech stocks and mixed macroeconomic indicators. The Dow Jones Industrial Average fell -0.77% from the previous trading day to 52,146.42 points, while the S&P 500 and Nasdaq indices also dropped by -1.01% and -1.40%, respectively. In particular, the Philadelphia Semiconductor Index, which represents sentiment in the semiconductor sector, fell -1.63% to 11,673.89 points, leading the overall corrective mood in tech stocks. U.S. industrial production in June increased by only 0.1% month-on-month, falling short of market expectations (0.2%), and import prices in June rose by 0.3% month-on-month, adding to the uncertainty of the inflation path. Furthermore, as geopolitical risks in the Middle East intensified again, West Texas Intermediate (WTI) crude closed at $82.49 per barrel, up 4.48% from the previous day, stimulating risk aversion in the market. This increases the cost burden across the global supply chain, acting as downward pressure on the valuation of domestic IT and manufacturing sectors.

Domestic Market Overview

Last Friday, the domestic financial market was closed for Constitution Day, temporarily evading exposure to global market volatility. However, on the previous trading day, July 16, the KOSPI recorded 6,820.60 points, down -6.37% from the prior trading day, and the KOSDAQ also closed at 791.84 points, down -4.53%. Both markets saw such a concentration of selling that sell-side sidecars were triggered, and foreigners and institutions simultaneously turned to net selling on the KOSPI. The direct background of the decline was heightened concerns over a semiconductor sector correction, driven by the suspension of New York's data center construction moratorium policy and the IPO push of Chinese memory company CXMT.

In the foreign exchange market, the USD/KRW exchange rate closed at 1,487.7 won on July 16, up 7.7 won from the previous day, and last Friday, the 1-month non-deliverable forward (NDF) was quoted at around 1,487.3 won. The Bank of Korea's Monetary Policy Board unanimously raised the base rate by 25bp from 2.50% to 2.75%, shifting to a tightening cycle for the first time in 3 years and 6 months, which is also a factor constraining market liquidity. However, as this factor was already largely priced into the market, its impact on stock prices on the day was limited. Ahead of the opening on Monday, July 20, 2026, the domestic stock market suggests the possibility of early trading volatility as it belatedly reflects the aftermath of last Friday's decline in the New York stock market.

Key Industry Issues and Insights

Defense and Shipbuilding: North American Market Expansion and Settlement of High-Profitability Projects

Hanwha Aerospace (KOSPI: 012450)'s consolidated Q2 revenue is estimated to increase by 31.9% year-on-year to 8.3235 trillion won. Operating profit is expected to increase by 9.5% year-on-year to 947.3 billion won (OPM 11.4%), but fall slightly short of market expectations. This means that despite top-line growth, the margin of profit improvement was limited. However, the land defense systems division is estimated to have recorded a revenue of 1.9183 trillion won, up 8.2% year-on-year, recovering its operating profit margin to the 20% level. This is the result of increases in both exports to Poland and domestic mass production deliveries. In the second half of the year, order momentum is expected to continue as the U.S. self-propelled howitzer project, worth approximately 10 trillion won, is scheduled to select two prototype manufacturing companies during July.

Entry into the U.S. local procurement market is also becoming visible. Hanwha Philly Shipyard, together with U.S. ship management company TOTE Services, was selected as the builder for the U.S. Missile Defense Agency's (MDA) Missile Range Instrumentation Vessel (MRIV). The total project cost for building two MRIVs is around $2 billion, and the first vessel is scheduled for delivery in 2030. This is a case that proves entry into the U.S. defense procurement market through a local shipyard, going beyond simple weapons exports. With the U.S. Department of Defense and Navy sending Requests for Information (RFI) regarding combat ships and tankers to domestic shipbuilders, the density of South Korea-U.S. shipbuilding cooperation is increasing, raising expectations for qualitative improvement in the medium- to long-term order backlog.

IT Components and Semiconductor Hardware: Relay of High Value-Added Component Orders Driven by AI Infrastructure

Samsung Electro-Mechanics (KOSPI: 009150) revealed its market dominance in the high value-added sector by announcing an additional 450 billion won order for Multi-Layer Ceramic Capacitors (MLCC) for AI servers, following a previous 1.55 trillion won order for silicon capacitors (Si-Cap). This suggests that MLCCs are transitioning from general-purpose consumables to core components based on Long-Term Agreements (LTA). The large-scale capital expenditures amounting to 8 trillion won in Sejong and 15 trillion won in Busan are also interpreted as a change beyond simple facility investment expansion, in that it is a structure where clients' funds flow in concurrently during the capacity expansion process.

Along with the trend toward highly multilayered semiconductor packaging substrates, the trickle-down effect is also spreading throughout the materials, parts, and equipment value chain. Inspection probe card materials company SEMCNS (KOSDAQ: 252990)'s Q2 separate operating profit is projected to increase by 150.3% year-on-year to 8.6 billion won (OPM 29.1%), which is analyzed to exceed the consensus by 6.6%. The background is the expansion of volume directed to Samsung Electronics by domestic probe card makers. Doosan Tesna (KOSDAQ: 131970)'s Q2 operating profit is expected to fall below the consensus, but the structural trajectory of frontline hardware infrastructure investment is maintained, with its operating profit growth rate projected to reach 192% in 2027 due to revenue contributions from new product lines.

Petrochemicals and Refining: Benefits from Russian Supply Chain Disruptions and Surging Refining Margins

In the third week of July, the Singapore complex refining margin recorded $25.7 per barrel, exceeding the break-even point of $4.5 by more than five times. This was influenced by Asian diesel margins rising by 27% over the week to $66.7 per barrel, as some Russian refining facilities suspended operations following drone attacks. The U.S. 3-2-1 crack spread also broke its historical high at $69.5. In the chemical sector, Hyosung TNC (KOSPI: 298020)'s Q2 operating profit is expected to record 161.8 billion won (YoY +121%), exceeding the consensus (130.5 billion won) by 24%. This is the result of spandex inventory days in China shrinking from the low 50s at the beginning of 2025 to currently 38 days, and factory utilization rates rising from the 70% range to the mid-80% range. On the other hand, Lotte Chemical (-52%) and Korea Petrochemical Ind. Co. (-70%), which have a high proportion of basic petrochemicals, are expected to fall short of the consensus, proving that polarization is deepening depending on whether a high value-added fine chemical product portfolio has been established.

Market Signals

• China's Q2 Growth Rate Falls Short: China's real GDP growth rate for Q2 was only +4.3% year-on-year, falling short of both market expectations (+4.5%) and Q1 (+5.0%). The slowdown in domestic demand and the reduced contribution of net exports are the backgrounds.

• BOK's First Rate Hike in 3 Years and 6 Months: The Bank of Korea's Monetary Policy Board unanimously raised the base rate by 25bp to 2.75%. Governor Shin Hyun-song announced that the tightening stance would be maintained until prices stabilize at the target level.

• Hyosung TNC Expected to Exceed Consensus: Hyosung TNC's Q2 operating profit is projected to be 161.8 billion won, exceeding the consensus (130.5 billion won) by 24%. The improvement in the Spandex and PTMG sectors drove this.

• Alteogen Decides on Bonus Issue: Alteogen (KOSDAQ: 196170) temporarily suspended its push to transfer its listing to the KOSPI and decided on a bonus issue of 30% per share. On the previous trading day, July 16, its stock price closed down 4.16%.

Epoch View: Investment Implications

The domestic stock market could not reflect the decline in U.S. tech stocks and geopolitical risks from the Middle East in real-time last Friday due to being closed for Constitution Day. After Monday's opening, it is judged that a short-term index correction and fluctuations in foreign supply and demand due to the rising exchange rate will be inevitable. In addition, as the Bank of Korea pivoted toward tightening for the first time in 3 years and 6 months, the burden of discount rates is also gradually increasing. However, even amidst external macroeconomic turbulence, the earnings resilience of individual industries is moving in strict divergence. Hanwha Group's entry into the North American defense procurement market and Samsung Electro-Mechanics' relay of high-end component orders for AI suggest that the status of Korea's core manufacturers within the global supply chain has taken a leap forward. However, as seen in the estimation that Hanwha Aerospace's Q2 profit will fall short of market expectations, top-line growth does not immediately translate into profit. Rather than being swayed by the direction of the index, a strategy of compressing the portfolio mainly around stocks where both orders and margins are confirmed is effective.

This content was generated by News Epoch's proprietary AI algorithm, which tracks and analyzes public data from major domestic securities firm research centers and global financial media in real-time. It is an objective summary based on collected data and is not intended as a solicitation or recommendation to invest in specific stocks.