Bank of Korea sees limited risk of sustained stock market downturn

The Bank of Korea said Thursday that the domestic stock market faces only a limited risk of a sustained downturn. Gov. Shin Hyun-song made his first appearance before the National Assembly since taking office in April.

In a report submitted to the National Assembly's Finance and Economy Committee, the central bank cited continued upward revisions to chipmakers' operating profit forecasts and the government's ongoing efforts to improve the capital market regime as grounds for its assessment.

On Kospi movements, the bank said share prices had swung sharply since May, as foreign investors took profits and half-year portfolio rebalancing added to the volatility.

Share prices could remain highly volatile going forward, the bank added, influenced by concerns over the AI industry, shifts in major central banks' monetary policy stances and changes in global capital flows.

The Bank of Korea also offered a positive outlook on the global semiconductor cycle, saying it would continue to expand for a considerable period on the back of growing AI applications and rising investment in related infrastructure.

The assessment factored in surging demand for computing power driven by the spread of AI, sustained investment by major big tech firms seeking to secure a competitive edge, and supply constraints stemming from the high complexity of advanced manufacturing processes.

Among sectors, semiconductors showed the greatest room for further gains. The sector surged 95.7 percent from November last year through February this year, and posted an additional gain of 72.1 percent from March through early July.

That compared with Kospi advances of 52.0 percent and 29.5 percent over the same respective periods, underscoring the semiconductor sector's outperformance. By contrast, from March through early July, defense (-1.1 percent), shipbuilding (-13.7 percent), automobiles (-22.7 percent) and nuclear power (-25.3 percent) showed limited room for further gains.

However, the Bank of Korea said concerns about AI profitability leading to financial market corrections, a pullback in big tech capital investment and energy bottlenecks all represented downside risks.