"Harder Than the IMF Crisis": Expert Diagnosis of the Korean Chip Market Sell-Off and Outlook

He described it not as a simple market correction but as an event that placed unprecedented psychological and financial pressure on domestic investors.

Drawing on that experience, Lee stressed how much pain this decline inflicted on individual investors. He pointed out that the sharp index drop in a short time sent many investors into panic and erased their hopes of recovery, highlighting how serious it was. His analysis is that compared with past crises, this decline unfolded in an unpredictable way, making it even harder to respond to.

His remarks suggest that the sell-off is not merely a technical adjustment but could leave deep aftereffects across the Korean economy and financial markets. While past crises tended to be confined to particular economic actors or industries, this episode is distinct in that it chilled investor sentiment across the board and directly hit investors' assets.

He voiced concern about the ripple effects this downturn could have on the broader economy and said he expects the market's recovery to be difficult. He argued that restoring investor confidence and stabilizing the market will take considerable time, and that a careful and proactive response from the government and financial authorities is necessary.

Pointing out that the declines of Korean firms were far larger than those of overseas chipmakers such as Micron, he explained that this stemmed from the specific characteristics of the Korean market.

Lee stressed that while the overall direction of the global semiconductor market was similar worldwide, the depth and damage in the Korean market were greater. In other words, even if the initial triggers were the same, domestic-specific factors combined to deepen the decline. He added that it is important to carefully identify and respond to these unique causes.

This analysis highlights the structural weaknesses of the Korean market and shows its sensitivity to global economic swings. It is read as a message that rather than blaming external factors alone, internal problems must be addressed to raise the market's resilience to recover.

This means that the mechanisms meant to halt a decline did not work properly, so falling prices chained together one after another.

Lee analyzed that such mechanical trading systems weakened the market's own capacity to correct and aggravated investors' psychological instability. A vicious cycle emerged in which automatic selling was triggered at certain price levels, which in turn provoked further selling, magnifying the shock to the market.

He explained that the market shows extreme volatility, rising too much when it goes up and falling too much when it goes down, and is failing to play the role of a healthy market.

Lee pointed out that this phenomenon impairs market efficiency and raises unpredictability for investors. He argued that the market is gradually being distorted as its ability to discover rational prices weakens and emotional trading becomes dominant. He expressed regret that the Korean market, in its current state, cannot find its own balance and reacts overly sensitively to external factors.

Lee Seon-yeop said that, based on his decades of watching the semiconductor industry, chip market forecasting is the hardest of all. He explained that even industry professionals find it difficult to predict, because unexpected consumer demand and technological revolutions can rapidly shift the market's balance.

He cited the "Tamagotchi craze" as an example, recalling a case in which a completely unanticipated surge in demand for a handheld toy rapidly expanded the semiconductor market. He said such cases, where the popularity of a particular product suddenly explodes and chip demand grows enormously, make forecasting difficult.

Lee pointed out that this unpredictability is one of the biggest risk factors in chip investment. He also cited the complexity of supply chains and the rapid pace of technological change as factors that make semiconductor market forecasting difficult.

He explained that analysts have limits in quickly grasping market trends, and that real change begins first with manufacturers and the supply chain.

He noted that analysts do not get information simply from Google searches but receive orders from or monitor market trends at major companies such as Samsung Electronics, yet it is hard for them to know the internal motives behind why orders are cut or increased. In the end, he said, fundamental market change originates in real business decisions and developments inside the industry.

He warned that hasty investing is very likely to lead to wrong judgments.

Lee stressed that because markets are always changing and new leading sectors and trends keep emerging, it is important in today's uncertain situation to wait and look for opportunities rather than rushing in. He explained that moving only once a new trend has become clear is the path to long-term success.

Lee Seon-yeop stressed that at this point a wait-and-see stance is needed rather than investing in a hurry. He presented two priorities: first, it is time to coolly judge whether the price declines of existing leading companies are justified or whether greater risks lie ahead.

This means investors should not focus only on price declines but should carefully analyze companies' intrinsic value and their changing market positions. He said it is important to distinguish whether the decline is a technical correction or a fundamental structural change in the industry, and that this analysis allows investors to reorganize their strategies.

His second priority was to predict and prepare for which new leading company or industry trend will emerge. With current leaders showing weakness, he said finding the driver of the next market is essential for long-term investment success, and he stressed the need to watch for signs of change with a forward-looking view.

In conclusion, Lee advised acknowledging current market uncertainty, taking a cautious approach to review existing portfolios and seek new opportunities. He stressed that rational decisions based on data and analysis matter more than hasty emotional responses.

This means the direction of the chip market is absolutely influenced by interest rate movements.

He pointed out that the U.S. 10-year Treasury yield, shown in red, and the semiconductor index, shown in blue, have recently moved in exactly the same direction, and analyzed that rate movements have become a core indicator for chip-related investment. His conclusion is that the trajectory of rates is likely to determine the direction of the chip market.

Lee characterized this Korean attitude as "a very unusual and baseless confidence," saying he cannot understand how Korea thinks it can beat China in an environment with a 52-hour work week. He urged the Korean chip industry to work harder and change.

He warned that while overseas players already feel the threat from China and are preparing countermeasures, Korea remains content with past successes. Lee said it is not too late, and that Korea should coolly calculate and implement ways to gain an edge over China.

These remarks carry an urgent message that the Korean chip industry must face the current crisis squarely and strengthen its competitiveness through innovation and effort rather than complacency. He sharply criticized the reality that Korea is no longer afraid and no longer trying to escape, but is resting on its laurels.

Lee Seon-yeop of AFW Partners analyzed that hyperscalers' semiconductor investment plans are firm, but whether they are actually carried out is uncertain because of funding risks. He expressed doubt that, although the plans have been announced, they will be hard to execute if the financial conditions to support them do not materialize.

Lee identified "interest rates" as the key factor that could resolve this doubt. He explained that if rates fall and borrowing conditions improve, companies will find it easier to raise funds, which would raise the likelihood that investment plans are executed. Since investment is mainly carried out with borrowed capital, he said low rates significantly improve companies' investment conditions.

Therefore, he stressed, rate conditions are directly tied to hyperscalers' chip investment and will also significantly affect the earnings of Korean chipmakers. He added that rate stabilization would ease investment uncertainty and have a positive effect on liquidity, injecting vitality into the market as a whole.

This analysis shows that macroeconomic variables such as interest rates, not just technological factors, have a major impact on the future of the semiconductor industry. For hyperscalers' investment plans to materialize, a stable rate environment is essential, and this is expected to directly affect the outlook for domestic chipmakers.

Lee Seon-yeop of AFW Partners pointed out that short-term U.S. Treasury yields are falling while long-term yields are rising, a trend that has become pronounced. Whereas short- and long-term rates used to move together without large gaps, the spread has recently widened considerably.

Lee explained that the 2-year short-term yield (green line) is falling on expectations that the Federal Reserve will not hike rates, reflecting its monetary policy, while the 10-year (red) and 30-year (blue) long-term yields are instead rising. He said this signals the market's distrust of the Fed's ability to control inflation.

He analyzed that the market believes the Fed will fail to tame inflation, and that this is tied to several combined factors, including distrust of Trump and the widening U.S. fiscal deficit. In the end, he interpreted the rise in long-term rates as market participants reflecting concern about persistent inflation.

This inversion of the short- and long-term yield curve is seen as an indicator that goes beyond numerical change, reflecting falling confidence in the Fed's monetary policy and market unease about structural problems in the U.S. economy. It is expected to deepen debate over future rate policy and the economic outlook.

Lee Seon-yeop stressed that for the Federal Reserve to hike rates, the premise must hold that the U.S. economy is sound. He predicted that if employment indicators begin to slow, this premise would break down and rate hikes would become difficult.

He explained that a slowdown in employment could be read as a sign of recession, and that raising rates in such a situation would carry a high risk of pushing the economy fully into recession. He analyzed that if "maximum employment," one of the Fed's dual mandates, were to wobble, the Fed would have no choice but to be cautious about rate policy despite its inflation target.

Lee said he sees the resilience of the U.S. economy as the key to whether rates rise, and added that changes in the employment market will be an important variable determining the direction of future Fed monetary policy.

Before the meeting a hike had looked likely, but a hold is now also quite probable. He noted that yesterday the hold probability was about 55%, and it has now shifted to around 51% tilting toward a hike, showing that uncertainty remains high.

Amid this uncertainty, he diagnosed that the key factor that will draw the line for rate stabilization will ultimately be a "slowdown in the U.S. economy." He analyzed that if the economy weakens somewhat from current levels, though not to the point of recession, the Fed would likely feel less pressure to hike and shift toward stabilization.

He stressed that the Fed's monetary policy will depend heavily on real-economy indicators such as U.S. employment and economic growth. If growth slows, inflationary pressure could ease, weakening the case for a rate hike. He therefore expects upcoming U.S. economic data to have a decisive effect on market rate expectations.

This analysis suggests the Fed is weighing its dual mandate of employment and economic stability together, not just pursuing its price target. With the rate-hike decision still uncertain, the degree of the U.S. economic slowdown is likely to be the turning point that decides the market's direction.

This can be read as a positive signal that some foreign investors bought in, seeing the Korean market's bottom.

However, Lee explained that as the market slid again afterward, opinions have split even among foreign investors. Some see current prices as cheap and a buying opportunity, while others still hold a negative outlook on the market, so investment strategies are mixed.

An imugi is still better than a snake, but whether it will grow into the dragon-like company with independent market dominance that people truly want remains uncertain, he cautiously said.

This is a realistic assessment that long-term supply contracts are a positive factor that raises stability and predictability, but they are not a magic fix that suddenly lifts corporate value. Ultimately, the key lies in strengthening market position through the ability to execute contracts and sustained technological innovation.

PBR is market capitalization divided by book assets, so a low PBR means the stock is undervalued relative to its asset value.

Lee pointed out that the value of assets such as the company's residential land and Dongtan land keeps rising, yet the government is not forcing an asset revaluation. He explained that if the land Samsung holds in the Dongtan and Yongin areas were revalued in line with the current rise in apartment prices, the PBR would fall much lower, to around 0.xx. This carries a critical view that companies' real asset value is not properly reflected in their share prices.

He warned that even if the current correction was a buying opportunity, with volatility at this level a true downturn could bring far more serious conditions.

Lee pointed out that a downturn will certainly come again, and that if mechanical trading systems become even more active then, individual investors will struggle to respond in time when the market crashes. This means market liquidity could suddenly dry up and the repeated pattern of automatic selling begetting selling would make it very hard to time an exit.

In conclusion, he suggested that the current market system may not give investors enough opportunity to sell and stressed the need to prepare for this. He indicated that in a market environment dominated by mechanical trading, past investing approaches may no longer work.