AI investment uncertainty resolved; rally centered on Samsung Electronics and SK Hynix expected

Amazon said it would recover its investment within the first two years and then serve as a cash cow for the following 30 years. This is a factor that could ease distrust of the AI industry and revive expectations.

Rising expectations for the AI industry are expected to have a major impact on the Korean market. In particular, leveraged ETFs listed in Korea are expected to have the greatest effect on domestic stocks. This could act as an important variable for the share price trends of domestic AI-related companies.

Analyst Lee Young-hoon had initially expected an initial peak around 7,200, but analyzed that recent movement reflects a natural rise following a large decline from the bottom. He noted that rotational buying has largely taken place, but that the market will not fall once rotation ends next week; he sees greater potential for upside.

Foreign investor flows improved noticeably this week. Short-selling pressure on lending remained until Monday, but eased from Tuesday through the latter part of the week. Team leader Oh Hyun-jin noted that foreigners had tended to attack the Korean market through short selling, but recently that pressure has eased, and he expects the improvement in foreign flows to continue.

This shows that investor sentiment toward domestic semiconductor companies has weakened.

In particular, short positions in Samsung Electronics rose by more than 1 million shares, and even when semiconductors rebounded, there was no aggressive buying of the underlying stocks. Analyst Lee Young-hoon argued that these supply-and-demand factors deepened the neglect of Korean DRAM makers' share prices.

There had been noise around SK Hynix, including rumors of a dumping contract with Nvidia over HBM, but this week it was confirmed that these were untrue. Clearing this noise helped reduce uncertainty in the market.

Expectations around shareholder returns are gradually rising. Samsung Electronics said at its recent conference call that it would announce details soon, raising anticipation. Meanwhile, SK Hynix's share price gains were somewhat held back by concerns over the scale of its shareholder returns and noise about a possible listing of a subsidiary.

There had been noise about free cash flow around the last earnings release, but on Meta's conference call it said it would not fund AI investment solely from its own cash. Instead, it would fund 20–30% from its own cash and the rest through joint ventures with financial institutions. This suggests the way AI investment is funded is changing.

SK Hynix recorded net buying for three consecutive sessions through today, driving its share price higher. The rise in these large caps also had a positive spillover to peer stocks, and the Hyundai Motor Group's share price rose nearly 40% from its bottom. Analyst Lee Young-hoon noted that rotational buying is nearing its end, but pointed to foreign investors' continued buying of Samsung Electronics and SK Hynix.

As distrust of the AI industry is partly resolved and expectations build again, confidence in the market is also rising. Combined with factors such as a gap in supply and demand, this is driving share prices higher, leading to forecasts that the current rally will not end easily. Analyst Lee Young-hoon analyzed that rather than rotation continuing, a specific leading stock could emerge and pull the market along. He expects a cycle in which other stocks move while the leading stock takes a breather.

Concerns were raised that foreign investors could reuse leveraged ETFs. This product, which can be used again at any time, is hard for individual investors to buy aggressively because they lack conviction right now. However, if AI, the cycle, or CAPEX investment themes re-emerge and flows pile into them, foreigners could use this product to pump share prices and exploit the situation.

Analyst Lee Young-hoon stressed the importance of preparing in advance when nothing has changed yet.

Analyst Lee Young-hoon explained that if the authorities manage them, they can slow inflows by adjusting multiples artificially when overload or specific supply-and-demand imbalances occur. This suggests that authorities' intervention is needed to maintain market stability.

They did not recover the June decline, but nearly recovering the July decline indicates that expectations around shareholder returns are being partly priced in. Analyst Lee Young-hoon and Team leader Yeo Hyun-gyu both assessed that this movement shows the market's positive expectations about shareholder returns.

Analyst Lee Young-hoon cautiously forecast that, although coordination with the authorities is needed, the buyback-and-cancellation portion could turn out larger than expected rather than cash payouts. He stressed that for share price gains, buybacks and cancellations are far better than cash dividends. This approach can directly boost share prices by increasing the scarcity of the stock.

The sector has now posted the second-highest exports after France, and there are also growing expectations that it could overtake France next year. This suggests the cosmetics ODM industry is growing strongly and that expectations for its future are high.

Analyst Lee Young-hoon assessed that domestic companies offer sufficient merit even compared with overseas competitors. Although share prices did not immediately rise sharply and showed some hesitation, the analysis holds that the fundamental appeal remains intact.

It was emphasized that if AI investment can continue, interest in related sectors remains worth maintaining. As long as the growth prospects of the AI industry persist, foreign investors are expected to keep flowing into related domestic companies. This is expected to act as one of the major growth drivers of the market.

With no special issues expected next week, individual investors' deposits have fallen below 100 trillion won, deepening the gap in supply and demand. As a result, large inflows of individual investor funds are expected to be difficult for the time being. Consequently, foreign investors' flows are expected to play an important role in leading the market, and this is a time to watch foreign investors' moves closely.