Is Korea’s stock market seeing end to tech run?

South Korea’s main bourse index on Monday saw a recovery from Friday’s drop of 1.73 percent, the largest in nearly 13 months.

The Kospi edged up 0.07 percent from Friday to close at 2,402.71 on Monday. Tech giants Samsung Electronics and SK hynix rose 0.92 percent and 2.17 percent, slight recoveries compared to slides of 4.1 percent and 5.56 percent, respectively, Friday.

While viewing Friday’s plunge of the Kospi as “short-term noise,” local analysts said time is ripe for investors to shift their attention away from tech stocks in the Korean top-tier market. 

Foreign investors sold off Samsung Electronics shares worth 779.9 billion won ($696.3 million) from Tuesday to Friday, according to an estimate from KB Securities.

“The IT sector is seeing a rough adjustment in stock prices,” wrote Lee Eun-taek, a strategist at KB Securities. “Since the earnings release from SK hynix, offshore investors had sold off stocks for profit-taking.”

Lee added offshore investors instead showed high net purchases in Kospi-listed stocks related to customer service, finance and logistics.

Seo Jung-hun, an analyst at Samsung Securities, wrote Monday that investors’ desire for profit-taking from IT sectors was “coming closer to the height.”

“The earnings reports in the second quarter in IT sectors played a role in prompting a sellout of IT stocks,” wrote Seo Jung-hun, an analyst at Samsung Securities.

Seo, however, also said the drop stemmed from the price factor, instead of a change in fundamentals in the tech sector, citing profit margins of the IT sector and non-IT sector on the Kospi market which peaked at 21 percent as of July 20.

“Further adjustment on the IT sector is expected, but considering the IT sector valuation and growth momentum (is) still appealing compared to those of other markets, a further drop appears to be limited,” Seo wrote.

Another strategist, Yoo Seung-min of Samsung Securities, cast doubt on IT sectors’ performance in the third quarter “on projections that Samsung Electronics’ earnings already reached the top in the second quarter.”

But Yoo played down the possibilities of a downward cycle in the sector as a whole, since the drop makes little case for weak fundamentals.

“The market has recently been sensitive to the price volatility in global IT stocks,” Yoo wrote, partly citing Friday drops in the tech-heavy Nasdaq Composite and broad-based S&P 500 by 0.12 percent and 0.13 percent, respectively, triggered by a downbeat earnings release from Amazon for the second quarter.

Friday’s drop by 1.73 percent was the largest in nearly 13 months, driven by sell-offs of foreign investors, especially in the IT sector, whose daily net sales reached a 23-month high since Aug. 24, 2015.

By Son Ji-hyoung (consnow@heraldcorp.com)