Kospi eyes late-session rebound after dramatic reversal from 3.5% plunge

The Kospi is expected to open lower Tuesday, weighed down by overnight weakness on Wall Street, though analysts say the index could trim losses in the latter half of the session in a pattern of early weakness giving way to a late-day recovery.

According to Korea Exchange, the Kospi closed at 6,820.02 on Monday, up 31.14 points, or 0.46 percent, from the previous session. The index opened lower and at one point slid as far as 6,547.76, a drop of 3.55 percent, before staging a dramatic late-session reversal to finish in positive territory.

The turnaround appeared to be driven by buybacks from Samsung Electronics and SK hynix, which redirected the index upward even as trading volume thinned amid concerns over a US interest rate hike.

Buoyed by the two companies' buying activity, other corporations posted net purchases of 1.58 trillion won ($1.15 billion), marking nine consecutive trading sessions of net buying. By contrast, retail investors were net sellers of 143.6 billion won, while foreign and institutional investors recorded net selling of 640.2 billion won and 793.8 billion won, respectively.

"Other corporations absorbed all of the combined net selling by retail investors, foreigners and institutions," said Lee Jae-won, a researcher at Yuanta Securities Korea. "The buybacks by Samsung Electronics and SK hynix are the key pillar supporting the index's downside."

Lee added that the two companies had completed buybacks totaling about 10.3 trillion won through Aug. 28, with a remaining planned purchase of about 44.7 trillion won scheduled through November. "No problems have yet been identified in the semiconductor industry cycle, and the operating profit and free cash flow expected to grow going forward are factors that raise hopes for further expansion of shareholder return capacity," he said.

On Wall Street overnight, all three major indexes fell as renewed military exchanges between the United States and Iran dampened investor sentiment. The Dow Jones Industrial Average dropped 0.70 percent, while the S&P 500 and the NASDAQ Composite fell 0.33 percent and 0.12 percent, respectively.

International oil prices rose, with West Texas Intermediate for October delivery settling up 2.83 percent at $85.76 per barrel. US government bond yields climbed in tandem, with the 10-year yield surpassing 4.75 percent intraday — its highest level in 19 months.

In response, US President Donald Trump said interest rates were too high and suggested Federal Reserve Chair Kevin Warsh should do what needs to be done, indirectly pressing for a rate cut.

Semiconductor stocks held up well after Trump warned against efforts to block data center construction. Micron Technology gained 2.77 percent, Nvidia rose 1.48 percent, SanDisk climbed 5.50 percent and SK hynix's ADR advanced 2.20 percent.

Seo Sang-young, a managing director at Mirae Asset Securities, said Trump's warning against opposition to data center construction, combined with a rebound from Friday's sharp selloff, drove strength in semiconductor stocks and limited the overall index's decline. He added that month-end rebalancing flows and a late-session tech-led recovery amid thin trading volume also helped contain losses.

The Kospi is expected to open lower Tuesday, pressured by Wall Street's weakness and rising interest rates, but is forecast to pare losses as the session progresses.

The MSCI Korea ETF, a gauge of foreign investor sentiment toward the domestic market, rose 0.37 percent, while the MSCI Emerging Markets ETF fell 0.18 percent. The Philadelphia Semiconductor Index gained 0.57 percent, and KOSPI 200 night futures slipped 0.31 percent.

"Today, upward pressure on long-term US market interest rates and oil prices will weigh on the downside, but strength in US equities, US semiconductor stocks including Micron and SanDisk, and momentum from South Korea's August exports will serve as buffers, pointing to a session of early weakness and late-day recovery," said Han Ji-young, a researcher at Kiwoom Securities.

Han added that as third-quarter earnings previews get underway, there is room for further upward revisions to the Kospi profit consensus, and that upcoming earnings from US semiconductor names such as Broadcom and Micron could help normalize supply-demand dynamics and investor sentiment around domestic semiconductor stocks, which have been unsettled recently.