The KOSPI market experienced a 24.7% decline from its recent high of 9385 to a low of 7063, with 89% of KOSPI200 constituent stocks falling more than 30% from their yearly peaks, according to Korea Exchange data released July 12. Hana Securities analysis identified the upcoming US June Consumer Price Index (CPI) announcement on June 14 as a key variable for near-term market direction, with market expectations for CPI to decline to 3.8% year-over-year from May's 4.2%. The current correction severity exceeds all major decline periods except the Global Financial Crisis, COVID-19 pandemic, Federal Reserve rate hikes, and US reciprocal tariff announcements.
KOSPI Records 24.7% Decline With 89% of Stocks Down 30%+
According to Korea Exchange data, the proportion of KOSPI200 constituent stocks that fell more than 30% from their yearly highs reached 89%. This percentage exceeds the 86% recorded during the Federal Reserve's rate hike period in 2022 and the 63% during the US reciprocal tariff announcement.
Hana Securities Analysis Links CPI Results to Market Recovery Probability
Hana Securities analyzed US CPI announcement results and subsequent market movements since 2022. When CPI exceeded expectations, KOSPI's monthly average return was 0.4% with a 44% probability of gains. When CPI matched expectations, returns reached 1.8%, and when CPI fell below expectations, returns climbed to 4.9%. The probability of KOSPI gains when CPI came in below expectations reached 72%.
The S&P 500 showed similar patterns, recording a monthly average return of -0.6% when CPI exceeded expectations, but 1.9% and 1.7% when matching or falling below expectations respectively. The probability of gains increased from 44% when CPI exceeded expectations to 72% when it came in below expectations.
Researcher Lee Jae-man stated, "Considering past cases, the possibility of a short-term index rebound can increase if US CPI at least matches expectations."
Semiconductor and Defense Sectors Show Historical Resilience in CPI Data
The semiconductor sector showed relatively favorable returns regardless of inflation results. Since 2022, the KOSPI semiconductor sector's monthly average return was 3.2% when CPI exceeded expectations, 3.8% when matching expectations, and 7.1% when falling below expectations.
The defense sector demonstrated stronger defensive characteristics when inflation exceeded expectations, recording a monthly average return of 4.0% and a 72% probability of gains during such periods.
When CPI matched or fell below expectations, semiconductor, defense, power equipment, hardware, and securities sectors commonly showed favorable performance. When CPI came in below expectations, shipbuilding and power equipment sectors recorded monthly average returns of 10.2% and 10.6% respectively. The securities and shipbuilding sectors showed gain probabilities of 89% and 83% respectively.
Analyst Identifies 13 Stocks With Improved Earnings and Compressed Valuations
Hana Securities recommended focusing on stocks where earnings forecasts improved but valuations significantly declined due to weakened investor sentiment. The firm identified Samsung Electronics, SK Hynix, Samsung Electro-Mechanics, HD Hyundai Heavy Industries, Hyosung Heavy Industries, Hanmi Semiconductor, LG Innotek, Hyundai Rotem, Hanwha Systems, Kiwoom Securities, Daeduck Electronics, Taihan Electric Wire, and Hanwha Engine as candidate stocks.
These stocks experienced larger declines in 12-month forward price-to-earnings ratios (PER) than stock prices since their June highs, while expected earnings per share (EPS) were revised upward during the same period. Samsung Electronics saw its stock price fall 21.4% from its high while PER declined 29.8%, but expected EPS increased 12.0%. SK Hynix experienced stock price and PER declines of 25.3% and 31.8% respectively, while expected EPS rose 9.5%.
Researcher Lee stated, "If CPI matches or falls below expectations and provides an opportunity for index rebound, a strategy of increasing weight in oversold stocks with improved earnings estimates but significantly lowered valuations due to deteriorating investor sentiment would be effective."
FAQ
What caused the KOSPI stocks market to decline 24.7% from its recent high?
According to Korea Exchange data released July 12, the KOSPI fell from a recent high of 9385 to a low of 7063, representing a 24.7% decline. The correction severity exceeds all major decline periods except the Global Financial Crisis, COVID-19 pandemic, Federal Reserve rate hikes, and US reciprocal tariff announcements, with 89% of KOSPI200 constituent stocks falling more than 30% from their yearly peaks.
How did Korean stocks sectors perform historically based on US CPI results?
Hana Securities analysis of data since 2022 showed that when US CPI fell below expectations, the KOSPI recorded a monthly average return of 4.9% with a 72% probability of gains. The semiconductor sector showed monthly average returns of 7.1% when CPI came in below expectations, while shipbuilding and power equipment sectors recorded returns of 10.2% and 10.6% respectively during such periods.
