KOSPI Down 5.46%: The Cause Is Not CXMT

The Korean stock market recorded a sharp decline.

However, specifications, an exact release date, and yield (the share of good products) were not disclosed, and there is no confirmation of customer qualification.

Compared with Samsung Electronics' target of mass-producing its 4F-scale products by 2028, the announcement appeared to be two years ahead, which made it a headline.

The assessment is that the CXMT announcement has little significance in itself. It contains none of the information the market wants to know, such as actual product specs, yield, or launch timing.

The announcement merely mentioned the DDR5 product line, and there is insufficient basis to judge its practical impact on the global market.

A chipmaker cannot suddenly double or triple its output. It has to build new factories, which takes at least several years. Even by 2027, CXMT's production capacity alone is unlikely to pose a real threat to the global market.

There is no reason for the market to fundamentally reshape the competitive landscape based on a short-term announcement.

If the rise of Chinese memory chips were a genuine concern, CXMT's share price should be rising. Instead, it fell 15% over the past five days. This signals that the market did not treat the CXMT announcement as a real threat from a Chinese company.

The announcement came on October 10, but the Korean market did not make much of it at first. US markets reacted negatively first, and the Korean market followed. A psychology of 'the market will view it negatively, so I will too' took hold.

It is uncertain whether they can keep investing to build AI data centers.

In particular, US interest rates are at their highest level in 20 years. For Big Tech to spend more than their operating cash flow, they must issue corporate bonds and increase their debt. Doubts over whether they can keep issuing bonds in a high-rate environment are weighing on the market.

AI hardware investment has turned into a macro issue, a capital bottleneck. Hyperscalers (Big Tech companies) are taking up an increasingly large share of the investment-grade bond market. They currently account for 5% of the investment-grade corporate bond market and are expected to grow to 7 to 8% next year.

This means their bond issuance has a growing impact on the overall market. When interest rates rise, their borrowing costs surge, forcing them to scale back investment plans.

Memory chip earnings for 2026 and 2027 are considered secure. However, there is no way to know exactly how AI capital expenditure will look in 2028. That can only be confirmed when the time comes.

Yet the market is now demanding firm guarantees of 2028 earnings. As long as uncertainty remains, investors judge that it is hard to value current share prices highly.

TSMC is currently hitting new highs. SK Hynix, by contrast, has fallen nearly 50% from its peak. After a big rise and then a big fall, Hynix built up a heavy overhang of selling pressure.

Both institutional and individual investors were badly hurt, and their willingness to invest further has declined. With a thick layer of selling pressure in place, a recovery in the Korean market will be very difficult.

Monthly trading volume on the Korean market has returned to the level it was at before the big rally from January to June. It is back to the volume of the era once called the 'boring KOSPI'.

Investors who lost money in the big rise and fall of SK Hynix and Samsung Electronics have left the domestic market. As trading value disappeared, order books became thin, making the market's direction even more fragile.

At the same time, US stocks are hitting new highs. There is no particular reason to invest in volatile Korean stocks whose prices look shabby.

Bond yields have emerged as a new competitor to stock investment. As money floods into US bonds offering high returns, volatile Korean stocks are automatically left behind.

The lower support of the trading range formed since July has broken. Support existed at that price level because there were buyers willing to buy at that level, mainly individual investors buying on dips.

But once the funds of dip-buying investors were exhausted, a stronger wave of foreign selling overwhelmed the market. The breakdown of the range is like a front line collapsing.

In a downtrend, a broken support is a technical signal that prices may fall further.

A price level without support suggests the possibility of further declines until a psychological bottom is found.

First, a compelling AI event is needed. Technologies like agents could play that role, but they are still insufficient for now. Second, US Treasury yields need to come down. Lower yields would make it easier for Big Tech to borrow, expanding AI capex and thereby increasing memory demand.

Third, Big Tech must generate AI-driven profits as early as the second quarter, reaching a scale where it can invest in capex from its own earnings while still growing tens of percent per year. Realistically, all of these conditions are difficult to meet, so shareholder returns remain the only means of defending share prices amid the decline.

Shareholder returns refer to actions a company takes to share its earnings with shareholders. The main methods are buying back shares and cancelling them, or paying dividends.

Samsung Electronics is currently limited in buying back shares due to the Financial Industry Separation Act. This constraint is making it difficult to defend its share price.

The Financial Industry Separation Act restricts financial companies from holding 10% or more of a general industrial company. The purpose is to prevent financial companies, which hold customers' deposits as assets, from using those funds to rapidly expand their affiliates.

Samsung Life and Samsung Fire & Marine Insurance play core roles in Samsung's governance structure, and together they hold 10% of Samsung Electronics. Cancelling treasury shares raises the ownership stakes of the remaining shareholders, which also raises the stakes of Samsung Life and Samsung Fire & Marine Insurance. That would violate the Act, so buybacks and cancellations become difficult. However, if Samsung Life and Samsung Fire & Marine Insurance sold their stakes, the problem would be resolved.

This move is intended to further strengthen his management control.

When gifting listed shares, the reference price is the average closing price over the four months around the gift date (two months before and two months after). His ownership stake is expected to increase significantly.

A fundamental improvement in earnings that could defend share prices is difficult in the short term.

At the same time, when announcing earnings, companies need to communicate actively with shareholders in conference calls, as US companies do. Currently, the level of shareholder communication by Korean companies lags far behind that of US companies.