[R&E] KOSPI Drops 5.80% on Foreign Net Selling Turnaround, Semiconductors Weak Despite SK hynix's Decision to Cancel 40 Trillion Won in Treasury Shares

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

Global Market Brief

Although warnings from US financial authorities regarding global tech assets and the departure of foreign supply and demand temporarily contracted the domestic capital market, the profit realization capability of information technology (IT) infrastructure and companies' willingness to enhance shareholder value remain solid. At this juncture, where the performance of core supply chains such as semiconductors and power substrates is being proven, the short-term release of selling volumes serves as a catalyst to accelerate the sorting of the wheat from the chaff based on performance.

In the New York stock market the previous day, the large-cap S&P500 index recorded 7,707.98 points, up 0.21% from the previous day. The tech-heavy Nasdaq Composite Index closed at 26,331.09 points, up 0.16%, and the blue-chip Dow Jones Industrial Average finished the trading day at 53,463.05 points, up 0.22%. On the other hand, the Philadelphia Semiconductor Index, which represents the trend of technology stocks, fell 2.12% from the previous day to 11,738.23 points, breaking away from the synchronized upward trend.

The gradual upward trend in the New York stock market is the result of the US Treasury significantly expanding the scale of its long-term Treasury bond buybacks. The Treasury announced that it would more than double the size of its purchases of long-term Treasury bonds with maturities of 10 to 30 years. Due to this measure, the yield on the US 30-year Treasury bond, which had soared intraday to the 5.33% level, the highest since 2007, settled down to the 5.18% level, dropping 10bp from the previous day, thereby easing the interest expense burden on the asset market. In addition, Moderna (+176.8%) surged on the news of the phase 3 success of the mRNA cancer treatment jointly developed with Merck, leading the overall strength of the healthcare sector.

However, the financial stability discussions in the July FOMC minutes released by the Federal Reserve (Fed) put the brakes on tech stock investment sentiment. The Fed pointed out that the high valuation of artificial intelligence (AI)-related assets and debt-driven investment expansion could increase financial stability vulnerabilities. Consequently, SK hynix's American Depositary Receipts (ADR) rose more than 5% intraday upon the announcement of its share buyback but gave up the gains, and storage stocks such as Western Digital (-6.9%) and Seagate (-7.9%) showed simultaneous weakness, following Micron (-0.4%) and SanDisk (-3.5%). This proves that even amidst the favorable factor of falling US Treasury yields, wariness regarding AI valuations translated into sector-wide selling pressure.

Domestic Market Summary

As warnings about tech stock valuations originating from overseas and changes in supply and demand flowed in entirely, the domestic stock market recorded the steepest correction pattern of the year the previous day. The KOSPI index closed at 6,471.17 points, down 5.80% from the previous day, triggering an intraday sell sidecar. The KOSDAQ index also stood at 824.46 points, down 1.17% from the previous day.

In the Seoul foreign exchange market, the won-dollar exchange rate closed at 1,388.7 won, down 22.9 won from the previous day, under the influence of the US Treasury's announcement to expand long-term Treasury bond buybacks, significantly alleviating the strong dollar pressure. Despite the drop in the exchange rate, in terms of supply and demand, foreign investors turned to net selling in the KOSPI spot market for the first time in six trading days, leading the market decline.

Core Issues and Insights by Industry

Semiconductors and Substrates: Coexistence of Memory Price Defense and Aggressive Facility Investment/Shareholder Returns
Although domestic large-cap semiconductor stocks fell together due to a short-term supply and demand imbalance, capital allocation for improving business structures and enhancing shareholder value is accelerating. In the KOSPI market the previous day, Samsung Electronics (KOSPI: 005930) fell 7.82% from the previous day, and SK hynix (KOSPI: 000660) closed down 9.75%.

However, after the market closed, SK hynix announced its decision to buy back and cancel 40 trillion won worth of its own shares, equivalent to approximately 3.3% of the total issued shares, to enhance shareholder value. The purchase period is from August 20, 2026, to November 19, 2026. In addition, it demonstrated a strong commitment to shareholder returns by upgrading its shareholder return resource standard from the previous 'within 50% of free cash flow (FCF)' to 'more than 50% of FCF'. Through its third-quarter earnings announcement at the end of October, it also plans to share additional return policies such as basic dividends and special dividends.

Samsung Electronics also decided to begin construction of a new 6 trillion won HBM fab at its Onyang Campus this coming September to maintain its leadership in the artificial intelligence memory market. Along with this, it completed the early repayment of 20 trillion won borrowed from Samsung Display, and set out to improve its profit structure by raising some foundry unit prices by up to 15%.

The bellwether of the substrate industry, ISU PETASYS (KOSPI: 007660), demonstrated solid performance in multi-layer boards (MLB) even amidst the plunging market the previous day. Its consolidated second-quarter sales were 379.9 billion won, up 57% year-on-year, and operating profit surged 83% to 77.1 billion won. Its order backlog recorded 622.2 billion won, a 97% increase year-on-year, securing a driving force for sales growth in the second half of the year. This is thanks to the proportion of sales from the high value-added Multi-Lam process skyrocketing from 11% in the first quarter to 23% in the second quarter, along with implementing an average selling price increase of around 15% with multiple clients. The current stock price is trading at 16.3 times the expected earnings per share (EPS) for 2027, which is a significant discount compared to its three-year average valuation of 29.7 times. It has been proven by the numbers that solid infrastructure investments by large information technology companies are driving an upward trend in the performance of Korean component makers.

Power Infrastructure and BESS: Confirming North America-centric Hyper-growth Engines
The soaring power consumption of artificial intelligence data centers is translating directly into new performance records for domestic power equipment and battery energy storage system (BESS) component makers. The consolidated second-quarter operating profit of LS (KOSPI: 006260) recorded 595.6 billion won, a 153% increase year-on-year, breaking its all-time high record for the second consecutive quarter. Even profit growth across all affiliates, including wires and non-ferrous metals, drove the earnings surprise. Its listed subsidiary, LS ELECTRIC (KOSPI: 010120), is also continuing to achieve record-high levels of performance, boosted by the expanding demand for power infrastructure.

In the energy storage system component group, the qualitative growth of hidden champion companies stood out. Sangsin EDP (KOSDAQ: 091580)'s second-quarter sales were 86 billion won, up 40% year-on-year, and its operating profit surged 619% to 6.4 billion won. While expanding demand for battery backup units (BBU) for data centers and US BESS led the growth, it preemptively secured a mid-to-long-term sales base by deciding to add 4 more manufacturing lines for US BESS prismatic cans by the first half of next year, up from the current 6. Shinheung SEC (KOSDAQ: 243840) also recorded second-quarter sales of 131.6 billion won (+28% YoY) and an operating profit of 5.2 billion won (+143% YoY). Sales of cylindrical CIDs following the increased demand for data center BBUs underpinned this performance. This means that as major state governments tighten regulations on connecting data centers to the power grid, structural benefits have begun where the pressure to adopt independent power generation and BESS facilities is increasing.

IT and Precision Components: Small and Medium-sized Performance Hidden Champions Escaping Undervaluation
The strong second-quarter performance of small and medium-sized information technology and precision component makers, which was overshadowed by the steep drop in indices, is highlighting their valuation appeal. The second-quarter sales of SJG Sejong (KOSPI: 033530) were 524.6 billion won, an increase of 9.0% year-on-year, and its operating profit was 34 billion won, a decrease of 8.6% year-on-year, meeting the market consensus. Expanding its market share of exhaust systems for hybrid vehicles, whose unit prices are 20 to 30% higher than general internal combustion engine vehicles, emerged as an achievement. ITCEN ENTEC (KOSDAQ: 010280) vastly exceeded market expectations (2.5 billion won) with second-quarter sales of 138.8 billion won (+8.6% YoY) and an operating profit of 8.3 billion won. Sales in the cloud sector increased by 16.4%, sustaining growth for the ninth consecutive quarter, and its subsidiary ITCEN CLOIT successfully turned its operating profit to a surplus by securing a high value-added cloud business. Coocon (KOSDAQ: 294570) recorded second-quarter sales of 18 billion won (+7.3% YoY) and an operating profit of 5 billion won (+6.4% YoY), marking its eighth consecutive quarter of operating profit growth. This is thanks to defending its data service margin by increasing the proportion of low-cost payment products. In the process of expanding market volatility, this suggests a potential movement of funds toward small and medium-sized value stocks with verified performance and margin rates like these.

Market Signals

• SK hynix Share Buyback and Cancellation: SK hynix announced it will acquire and entirely cancel 40 trillion won worth of its own shares from August 20, 2026, to November 19, 2026, for stock price stabilization.

• US Long-Term Treasury Bond Buyback Expanded Twofold: The US Treasury announced it would more than double the purchase scale of long-term Treasury bonds with maturities of 10 to 30 years, bringing the US 30-year Treasury bond yield down to the 5.18% level.

• Moderna mRNA Cancer Treatment Phase 3 Success: Moderna surged more than 176% upon news of the phase 3 success of the customized mRNA cancer treatment jointly developed with Merck, leading the strength of the healthcare sector.

• Coocon 8 Consecutive Quarters of Operating Profit Growth: Coocon maintained its operating profit growth trend for the eighth consecutive quarter with second-quarter sales of 18 billion won and an operating profit of 5 billion won, defending its data service margin.

Epoch View: Investment Implications

The KOSPI sell sidecar, triggered along with foreign investors' temporary shift to net selling, is paradoxically a phase testing the valuation stamina of the domestic stock market. SK hynix's measure to buy back and cancel 40 trillion won worth of its shares and Samsung Electronics' preemptive start of HBM facility construction suggest that the profit generation capability and financial stability of Korea's leading semiconductor companies remain unchanged. The US Treasury's move to double the scale of Treasury buybacks has started acting as a practical shield to halt the long-term interest rate uptrend that was pressuring the asset market. Interest toward power infrastructure, whose profit growth has been proven even amid macroeconomic volatility, and small and medium-sized IT hidden champions with highlighted valuation appeal, is judged to become much clearer. The fact that sudden short-term changes in supply and demand cannot undermine the structural growth of the asset market is clearly proven by the individual companies' second-quarter report cards.

This content was generated through News Epoch's proprietary AI algorithm, which tracks and analyzes public data from research centers of major domestic securities firms and global financial media in real time. It is clarified that this is an objective summary based on collected data and does not constitute an investment solicitation or recommendation for specific stocks.