Was the fear overblown? Kospi survives the crash and faces a rebound test next week

South Korea's stock market, which suffered extreme volatility including the first-ever activation of circuit breakers on both the Kospi and Kosdaq for two consecutive days, faces a test next week of whether its rebound can be sustained.

Analysts say the sharp selloff reflected excessive fear driven by concerns over slowing AI investment, China's semiconductor ambitions and deleveraging-related selling pressure — rather than any fundamental deterioration in corporate earnings. US chipmaker earnings, employment data and South Korea's export and inflation figures are expected to determine whether investor sentiment can recover.

According to Korea Exchange, the Kospi closed Friday at 6,595.45, up 1,001.89 points, or 17.91 percent, from the previous session. The index surged more than 18 percent intraday, recovering the 6,600 level on a wave of bargain buying. On a weekly basis, however, both markets remained in negative territory. For the week of Monday through Friday, the Kospi fell 1.42 percent and the Kosdaq dropped 3.80 percent.

Last week, domestic markets saw panic selling concentrated in semiconductor stocks. Concerns about what analysts called "AI circular financing" were stoked by Alphabet's free cash flow swinging to a deficit and news of Nvidia's payment guarantee to OpenAI, while reports of Chinese chipmaker CXMT expanding production capacity and localizing lithography equipment added to the pressure. SK Hynix's earnings release also disappointed investors, who said the company's explanations of long-term supply agreements and shareholder returns fell short of expectations, further chilling sentiment toward the semiconductor sector. Rising crude oil prices and US Treasury yields amid military tensions in the Middle East amplified the losses.

Han Ji-young, an analyst at Kiwoom Securities, said the Kospi "remains in oversold, deeply corrected territory, but earnings credibility across the index is recovering through results from domestic chipmakers and US big-tech companies." She added that concerns over forced liquidation of Leopold's tech-leveraged fund had largely eased, and that "the market is in a phase of securing catalysts for a rebound from the bottom."

NH Investment set its forecast range for the Kospi next week at 5,200 to 6,500 points. It cited recovering confidence in semiconductor earnings and easing volatility as upside drivers, and profit-taking after the sharp rebound along with earnings shocks at individual companies as downside risks.

Na Jeong-hwan, an analyst at NH Investment, said the combined net asset value of 16 single-stock leveraged ETFs had at one point swelled to 17.6 trillion won ($12.2 billion) before falling back to around 6.1 trillion won. "With the minimum deposit requirement also raised, the likelihood of leveraged products further amplifying market volatility is limited," he said.

He went on to say that with most major events — including earnings releases from domestic chipmakers and US big-tech companies — now largely concluded, "the market's focus will shift from monetary policy uncertainty toward restoring confidence in semiconductor earnings and easing volatility."

Next week brings a series of US chipmaker earnings releases that will help gauge whether AI infrastructure investment is holding up. AMD reports Tuesday local time, followed by SanDisk and Western Digital on Wednesday. Analysts say a positive outlook on AI data center demand and second-half guidance from these companies could significantly reinforce expectations that AI infrastructure spending will continue. Conversely, if data center sales, profitability and second-half guidance fall short of market expectations, concerns about a broader slowdown in semiconductor earnings could resurface.

Economic indicators are another variable. Attention is focused on whether South Korea's July trade data, released Saturday, and the July consumer price index, due Tuesday, will help lift depressed investor sentiment. With oil prices rebounding and the exchange rate edging down, markets are watching to see whether price stability will hold.

In the United States, the Institute for Supply Management's manufacturing index is due Monday local time, followed by the Job Openings and Labor Turnover Survey on Tuesday and the employment report on Friday. Markets expect US nonfarm payrolls to have risen by 90,000 in July, with the unemployment rate ticking up to 4.3 percent from 4.2 percent the previous month. Analysts say weaker-than-expected jobs data could ease fears of interest rate increases and prove favorable for equities.

Analysts say that if market volatility eases next week, a continued rebound is possible, led by beaten-down earnings plays including semiconductor stocks.

Kang Jin-hyeok, an analyst at Shinhan Investment, said the Kospi's 12-month forward price-to-earnings ratio had fallen to 4.85 times, entering what he described as a historically undervalued range. He added that concerns over forced liquidation of Leopold's tech-leveraged fund had eased, and that SK Group Chairman Chey Tae-won's purchase of SK Hynix shares "could also have a positive effect on recovering semiconductor investor sentiment."

He went on to say that "bargain buyers have stepped in following the capitulation-style selloff, and the supply-demand picture appears to be bottoming out," adding that "in a deep-value recovery phase, it is worth paying attention not only to semiconductors but also to sectors with solid earnings backing — such as cosmetics, transportation and financials."