The South Korean stock market is facing intense selling pressure in a post-holiday catch-up decline. The Korea Composite Stock Price Index (KOSPI) plunged over 5% at one point during the July 20 session, hitting a low near 6472 points, bringing the critical 6500 support level into serious jeopardy. The index has now fallen over 10% in just two trading sessions, sharply increasing market focus on potential downside support.
By the close, the KOSPI was down 4.46% at 6516.27 points, hovering just above the 6500 mark. Foreign and individual investors provided some support with a combined net purchase exceeding 200 billion won for the day, helping to cushion the fall. However, institutional investors were heavy net sellers, offloading 243.9 billion won, with financial investment institutions alone responsible for 295.6 billion won in net sales, constituting the primary selling pressure.
Catalyst for the Catch-Up Decline
The sharp drop was triggered by a global semiconductor sell-off that occurred while the South Korean market was closed for a public holiday. The KOSPI had already fallen 6.37% on the last trading day before the break (July 16). During the holiday closure on July 17, global semiconductor stocks faced a fresh wave of heavy selling.
The Philadelphia Semiconductor Index fell 5.85% over the two days of July 16 and 17, with an intraday low showing a drop of up to 9.71%. Taiwan Semiconductor Manufacturing Co. (TSMC) fell 7.29% on July 17 alone, while Kioxia Holdings plunged 16.10%.
When trading resumed on July 20, the KOSPI opened 2.60% lower at 6643.58 points and continued to slide. Market participants noted that some adjustment pressure had been released in the previous session for stocks like Samsung Electronics and SK Hynix. Combined with valuations already near historical lows, this fostered relatively active buying interest around the 6500 level, with bargain-hunting sentiment helping to limit further losses.
The Pivotal 6500 Level
The 6500 point level is significant as it is widely viewed by technical analysts as the next major support. Goldman Sachs had previously identified this as a direct support level for the KOSPI should the 6800 level fail, with the next support zone seen between 6100 and 6000 points.
Daishin Securities pointed out that the KOSPI's 12-month forward price-to-earnings ratio has fallen to just 5.81 times, placing it in a historically low valuation range. As the KOSPI was among the first major global markets to enter a correction phase, it may also be one of the first to find a bottom.
NH Investment & Securities stated in a media briefing that, based on current conditions, an appropriate market "bottom" would correspond to a forward price-to-book ratio of 1.3 to 1.4 times, translating to a KOSPI level around 6000 points. Analysts at the firm simultaneously emphasized that it is "still premature" to conclude that the semiconductor cycle has peaked.
Institutional View: Selling Driven by Positioning
Several analysts believe the core driver of this sharp decline is positioning adjustment, not a fundamental deterioration in the semiconductor sector's outlook.
The analysis suggests the issue lies in the market's view that the current profit levels of semiconductor companies are unsustainable—for instance, Micron Technology's net profit grew 15-fold year-over-year last quarter, while Samsung Electronics' operating profit surged 17-fold. Such growth rates are objectively impossible to maintain. Semiconductor firms are shifting from previous price-hike strategies to a volume-driven approach, effectively restarting the cycle from a high base. Once profitability is confirmed at these new levels, a valuation re-rating could occur.
DS Investment Securities expressed a more reserved view on oversupply concerns. New production capacity, including Samsung Electronics' Pyeongtaek fab, is not expected to contribute meaningfully to market supply before 2035. The DRAM market is forecast to remain in a state of significant undersupply through 2026 and 2027, with another supply gap projected for 2031.
Eyes on US Tech Earnings for a Potential Turnaround
The market is now looking ahead to the US mega-cap tech earnings season, which kicks off this week, viewing it as a crucial window for judging whether the semiconductor sector's adjustment phase is ending.
Upcoming earnings reports from AI-focused companies will test the sustainability of AI demand and whether semiconductor stocks can break free from the pressures of de-leveraging and valuation compression. This period is seen as a potential "turning point" for the current market trend.
For Alphabet Inc. reporting on July 23, the market focus will be on changes to its 2026-2027 capital expenditure guidance and the profitability of its cloud computing business. For Intel Corporation reporting on July 24, attention will center on whether server CPU shipments show signs of recovery.
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