K-Shaped Polarization in the Stock Market Deepens Amid Oil Price Shock

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As international oil prices surge due to Middle Eastern geopolitical risks, the domestic stock market is once again experiencing significant volatility. The already pronounced K-shaped polarization among different sectors is expected to intensify further within the stock market.

On the 9th, as the KOSPI fell more than 6% intraday triggering a sell-side circuit breaker, employees at the dealing room of Hana Bank's Seoul headquarters were monitoring the stock market and exchange rates. On that day, the KOSPI opened at 5,265.37, down 319.50 points (5.72%) from the previous trading day on the 9th, while the KOSDAQ started at 1,096.48, down 58.19 points (5.04%). Photo by Jo Yongjun

On March 9, the KOSPI opened at 5,265.37, down 5.72% from the previous trading day, and dropped as much as 7.40% to 5,171.53 during intraday trading. The KOSDAQ also started at 1,096.48, down 5.04%. As stock prices plunged, a sell-side circuit breaker was triggered on the KOSPI at around 9:06 a.m. The sell-side circuit breaker is activated when the KOSPI 200 futures index drops by 5% or more and remains there for at least one minute.

Large-cap stocks experienced significant declines. As of 9:30 a.m., Samsung Electronics was trading at 171,300 won, down 8.98% from the previous trading day. Other major stocks also declined, including SK hynix (-9.20%), Hyundai Motor (-9.67%), LG Energy Solution (-5.30%), Hanwha Aerospace (-3.58%), Samsung Biologics (-6.02%), SK Square (-10.94%), Doosan Enerbility (-2.96%), and Kia (-8.86%).

In the Seoul foreign exchange market, the won-dollar exchange rate started at 1,493.0 won per U.S. dollar, up 16.6 won, and has been fluctuating in the 1,490 won range during the morning session. This marks the highest level since March 12, 2009, during the financial crisis, when the high was 1,500.0 won.

Last week, the domestic stock market saw a "roller coaster" trend due to the fallout from the Middle East war. On March 3, the first trading day after the U.S. and Israeli airstrikes on Iran, the KOSPI plunged 7%, and on March 4, it crashed by 12%, recording the largest single-day drop ever. Conversely, on March 5, the KOSPI soared 9.6% due to bargain hunting, marking the biggest rally since the 2008 financial crisis. On March 6, after fluctuating amid concerns over the expansion of the Middle East war, the KOSPI closed at 5,584.87, up 0.02%. Lee Kyungmin, a researcher at Daishin Securities, said, "While we must be prepared for additional volatility and fluctuations, the KOSPI is expected to find support around the 5,000 level. For the time being, the market will inevitably react sharply to statements from key figures in the U.S. and Iran."

Meanwhile, as the earnings season for the fourth quarter of last year draws to a close, it has been found that half of the listed companies that have released results so far have fallen short of market expectations. With the recent shock in oil prices adding to external uncertainties, concerns are growing that the K-shaped polarization of the stock market by sector will become even more pronounced.

According to financial information provider FnGuide, as of March 5, out of 245 companies for which at least three securities firms provided operating profit forecasts, 124 reported operating profits below the consensus (market average estimates).

By sector, Dreamtech and other mobile phone and related components companies (-75.8%), Hanssem and other consumer durables (-63.7%), Hyundai GF Holdings and other conglomerates (-63.3%), KCC and other building materials companies (-59.4%), Solu-M and other electronic equipment and devices (-59.3%), LG Display and other display and related components companies (-46.7%) all fell short of market expectations.

In contrast, Intellian Technologies and other telecommunications equipment companies (60.1%), Douzone Bizon and other general software firms (22.6%), KB Financial Group and other commercial banks (21.0%), CJ ENM and other media companies (14.2%), HMM and other maritime transportation companies (14.0%), and ISC and other semiconductor and related equipment firms (12.0%) exceeded consensus expectations.

The company that missed its fourth-quarter operating profit estimate by the largest margin was Krafton, which recorded an operating profit of 2.4 billion won, 98.1% below the consensus of 123.2 billion won. This was due to a one-off expense, including an 81.6 billion won contribution to a joint employee welfare fund to be used over the next four years in preparation for the move to the new Seongsu office building.

Kumho Petrochemical posted an operating profit of 1.5 billion won, 96.9% below the consensus of 48.3 billion won, reflecting weaker earnings in the synthetic rubber division due to slowing market demand at year-end and falling raw material prices. POSCO Holdings recorded an operating profit of 15.6 billion won, 96.2% below the consensus of 410 billion won. Although profitability in the steel business recovered, sluggish performance in battery materials and construction divisions affected results. Hanwha Systems (-84.7%), C&C International (-82.3%), Kolon Industries (-78.7%), SK Networks (-76.9%), and Dreamtech (-75.8%) followed in the rankings of underperformance.

Among large-cap stocks, major semiconductor companies stood out with strong earnings. Samsung Electronics posted an operating profit of 20.0737 trillion won, beating consensus by 8%. SK hynix reported an operating profit of 19.1696 trillion won, exceeding consensus by 16%. Both companies are considered to have entered a "supercycle" (boom period) as demand for general-purpose DRAM and high-bandwidth memory (HBM) rises alongside semiconductor price increases, driven by the expansion of artificial intelligence (AI).

The impact of surging oil prices originating from the Middle East is increasing cost pressures on companies and fueling concerns about inflation for households. According to market experts, investors should devise strategies to increase their portfolio allocation to sectors and companies that have strong pricing power and can pass increased costs on to sales prices.

Jaeman Lee, a strategist at Hana Securities, analyzed, "Since 2015, when the WTI price increases month-over-month, sectors such as semiconductors, transportation, shipbuilding, defense, and machinery have seen the largest increases in 12-month forward operating profit margins, and also when 12-month forward revenue expands, these sectors see a greater rise in expected operating profit margins."

In essence, it is crucial to pay close attention to changes in future earnings forecasts. According to Shinhan Investment Corp., projected operating profit growth rates for this year are highest in IT, followed by energy, materials, industrials, and healthcare. The IT sector continues to lead in growth rate, as the structural shortage of memory supply that began last year has become more severe, and the tight supply-demand situation for memory is expected to persist. In addition, demand related to AI continues to grow, further strengthening the trend of improvement centered on high-value-added memory.

Jeongbin Lee, a researcher at Shinhan Investment Corp., said, "Stocks that recorded operating profit surprises also showed solid pre-earnings performance, with the market partially reflecting positive signals even before the earnings announcements. This pattern, where strong earnings lead to stock price gains, has continued in recent quarters, and selective buying focused on companies with improving results is likely to persist going forward."

This content was produced with the assistance of AI translation services.