The main drivers of the South Korean stock market’s August rally were not Samsung Electronics and SK Hynix. While both stocks posted negative returns, previously neglected sectors such as construction, machinery and equipment, and metals recorded double-digit gains, leading the market’s warmth.

According to the Korea Exchange on the 28th, the KOSPI rose 3.73% this month. However, the two market heavyweights—Samsung Electronics—fell 0.95% from 262,500 won (approximately $190) to 260,000 won (approximately $190), and SK Hynix declined 0.70% from 1,718,000 won (approximately $1,200) to 1,706,000 won (approximately $1,200).

In contrast, the construction sector index surged 30.32%, posting the highest return among KOSPI sector indices. Kumho Engineering & Construction jumped 77.06%, followed by Xi S&D (72.50%), GS Engineering & Construction (53.94%), Daewoo Engineering & Construction (49.84%), and HanmiGlobal (42.23%), all showing notable strength.

The machinery and equipment sector rose 17.56%, while metals (16.45%), chemicals (13.40%), general services (13.08%), and telecommunications (11.92%) also posted double-digit gains.

Mid/small-caps outperformed large-caps

This month’s rally was more pronounced in mid/small-cap stocks than in large-caps. The KOSPI 200 index rose only 2.86%, but the “KOSPI excluding KOSPI 200” index—composed of stocks not included in the KOSPI 200—climbed 11.77%.

The KOSPI 200 mid/small-cap index surged 15.33%. While KOSPI large-caps rose 3.11%, mid-caps and small-caps gained 12.09% and 9.13%, respectively. Unlike the previous market pattern where a handful of large-cap stocks by market capitalization drove the index, the rally’s warmth has spread across the broader market.

Changes were also detected in foreign investor flows. From the start of the month through the 27th, foreigners net sold 3.46 trillion won (approximately $2.5 billion) of Samsung Electronics and 1.35 trillion won (approximately $980.9 million) of SK Hynix. Foreign capital exiting these two stocks alone totaled 4.81 trillion won (approximately $3.5 billion).

Instead, they net bought 480.3 billion won (approximately $349.0 million) of Samsung SDI, along with LG Energy Solution (251.4 billion won), Naver (234.2 billion won), Doosan Enerbility (225.4 billion won), and Korea Zinc (218.4 billion won). Foreign capital also flowed into the construction sector, which posted this month’s highest returns. They bought 201.8 billion won (approximately $146.6 million) of GS Engineering & Construction, and 164.6 billion won (approximately $119.6 million) and 110.8 billion won (approximately $80.5 million) of Hyundai Engineering & Construction and Daewoo Engineering & Construction, respectively.

Kim Sung-keun, an analyst at Mirae Asset Securities, said, “Considering the funding cost burden from expanded AI investment, a strategy of diversifying investment targets rather than concentrating on semiconductors and big tech is more advantageous.” He added, “There is a need to broaden focus to infrastructure expected to benefit from data center investment and healthcare where AI utilization is expanding.”

Margin loans remain concentrated in semiconductors

However, concerns have been raised that retail investors’ margin loan balances—borrowed money used for investing—remain concentrated in semiconductors.

According to the Korea Financial Investment Association, as of the 26th, margin loan balances in the South Korean stock market stood at 33.1 trillion won (approximately $24.1 billion), up 4.17 trillion won (approximately $3.0 billion), or 14.4%, from 28.93 trillion won (approximately $21.0 billion) on the 31st of last month.

By market, KOSPI margin loan balances increased by 3.41 trillion won (approximately $2.5 billion) from 22.84 trillion won (approximately $16.6 billion) to 26.25 trillion won (approximately $19.1 billion), accounting for 81.7% of the total increase. KOSDAQ margin balances rose only 761 billion won (approximately $553.0 million) from 6.09 trillion won (approximately $4.4 billion) to 6.86 trillion won (approximately $5.0 billion).

By stock, Samsung Electronics’ margin balance increased by 1.14 trillion won (approximately $826.2 million) from 4.46 trillion won (approximately $3.2 billion) on the 31st of last month to 5.6 trillion won (approximately $4.1 billion) on the 26th of this month. SK Hynix rose by 221.5 billion won (approximately $160.9 million) from 4.52 trillion won (approximately $3.3 billion) to 4.74 trillion won (approximately $3.4 billion) over the same period.

The combined margin balance increase for the two stocks was 1.36 trillion won (approximately $987.2 million), reaching 39.9% of the total KOSPI increase. Among the hundreds of stocks listed on the main KOSPI board, Samsung Electronics and SK Hynix alone accounted for roughly 4 out of every 10 won of margin growth.

Na Jung-hwan, an analyst at NH Investment & Securities, analyzed, “The breadth of the rebound was wide, but the index rise was effectively the result of a single sector—semiconductors. While most sectors posted positive returns, in terms of market capitalization contribution, semiconductors explain most of the index gain while other sectors’ contributions were minimal.”

Market liquidity moved in the opposite direction of margin loans. Investor deposits, which stood at 104.14 trillion won (approximately $75.7 billion) at the end of last month, decreased by 5.22 trillion won (approximately $3.8 billion) to 98.92 trillion won (approximately $71.9 billion) on the 26th of this month. Meanwhile, margin loan balances increased by 4.17 trillion won (approximately $3.0 billion) over the same period. Standby funds in the market decreased while leveraged investing expanded.

Samsung Electronics’ margin balance increased even after its stock price plunged. The stock fell 5.2% from 270,000 won (approximately $200) on the 21st to 256,000 won (approximately $190) on the 24th, but the margin balance rose by 479.6 billion won (approximately $348.5 million) in just two days from 5.12 trillion won (approximately $3.7 billion) on the 24th to 5.6 trillion won (approximately $4.1 billion) on the 26th. This suggests margin demand flowed in from investors who viewed the price correction as a buying opportunity.

A securities industry official noted, “Funds concentrating in leading stocks is a natural phenomenon in a rising market, but concentration of not just cash but also margin debt in one direction is a different matter. In the current situation where margin debt has piled up in Samsung Electronics and SK Hynix, if semiconductors collapse significantly, we could see a scenario where investors are forced to sell other holdings to cover margin calls.”

Ultra-high-net-worth individuals continue selling Samsung Electronics

Ultra-high-net-worth individuals with financial assets of 3 billion won (approximately $2.2 million) or more also continued selling Samsung Electronics.

The Seoul Economic Daily commissioned a securities firm to analyze the top five net buy and net sell stocks among 7,500 ultra-high-net-worth individuals for last month and this month (through the 24th). The most-sold stock this month was Samsung Electronics, with net sales of 91.34 billion won (approximately $66.4 million). This marks the second consecutive month it ranked first in net selling, following last month’s 75.75 billion won.

Samsung Electronics approved a record shareholder return plan of up to 110 trillion won (approximately $79.9 billion) on the 21st of this month, but aside from implementing approximately 30 trillion won (approximately $21.8 billion) in cash dividends including the regular Q3 quarterly dividend, specific details are to be finalized at the board meeting in late October. Some analysts suggest that the absence of immediate market movement, such as a stock price surge, may have partially influenced the selling pressure.

In contrast, these investors showed the highest interest in SK Hynix, net buying 122.11 billion won (approximately $88.7 million). This stands in stark contrast to last month when SK Hynix ranked second in net selling. They also net bought 31.68 billion won (approximately $23.0 million) and 11.83 billion won (approximately $8.6 million) of Samsung SDI, along with 9.89 billion won (approximately $7.2 million) of HMM and 7.79 billion won (approximately $5.7 million) of Cosmax.

Unlike last month when four of the top five net buy stocks were leveraged ETFs, this month’s top five net buys included no leveraged products. A securities firm official said, “Following the launch of single-stock leveraged ETFs, increased market volatility appears to have driven investors to realize short-term profits and then rebalance portfolios or rotate into large-cap stocks.”