Why the Sharp Drop Despite Strong Earnings? Can the Electronics Sector Rebound?

As KOSDAQ (Korea Securities Dealers Automated Quotations) has recently staged a sharp rebound, brokerage analysts say investor attention may shift toward sectors with strong earnings visibility after a recovery from oversold levels.
According to the Korea Exchange on the 11th, KOSDAQ rose 15.88% over the past week, from the 4th to the 10th. Over the same period, KOSPI (Korea Composite Stock Price Index) gained just 0.67%, widening the gap in returns between the two markets to more than 15 percentage points. Brokerage analysts view KOSDAQ's recent strength as an oversold rebound after interest-rate increases slowed. They said stock prices had fallen sharply during the rate-hike cycle, and once concerns about further increases eased, the recovery was relatively strong.
However, analysts say earnings could become the key factor determining stock performance after the rebound. Even if the pace of rate increases cools, interest rates themselves remain high, which could make sectors with clearer earnings visibility relatively more attractive going forward.
Kang Hyun-gi, a researcher at DB Securities, said, "Interest rates matter as much as their direction." He added, "Once the market's reaction to the direction of rates has run its course, stocks may start responding again to the level of rates. Interest rates are still high, so stocks with clear earnings visibility remain the better choice."
A representative sector where stock prices and earnings outlooks are diverging is the KOSPI electronics segment. From the 4th to the 10th, the KOSPI electronics sector fell 3.51%, underperforming the broader KOSPI. Its return over the past month was also -23.90%, a steeper decline than KOSPI's -15.73%.
The drop in stock prices looks even more pronounced when compared with earnings forecasts. According to FnGuide, the KOSPI electronics sector's share price fell 23.90% over the past month, while consensus operating profit for the third quarter of this year was revised down by only 1.62% during the same period. Looking at the past three months, sector shares fell 16.48%, but operating profit consensus was actually revised up 15.49%.
Brokerage analysts say the sector's slide in June and July reflected concerns about slowing IT demand and the possibility of reduced investment by big tech, rather than a real deterioration in earnings. By contrast, second-quarter results at major companies beat market expectations, and as the share of high-value-added products for AI server use increased, average selling prices and profitability also improved.
Seon-yeong Ko, a researcher at Yuanta Securities, said, "After the sharp declines in June and July, valuations across the electronics sector moved down to a lower level, and stocks have begun to show signs of turning around in August." She added, "We believe the gap between lower valuations and rising earnings estimates will narrow."
[email protected] Bae Hangeul Reporter