The focus in South Korea’s stock market this week is whether the KOSPI can hold above 8,000 after regaining that level. Local stocks plunged last week as a concentration in large semiconductor shares, an unwinding of leveraged flows and questions over the profitability of U.S. artificial intelligence investment overlapped. They managed to rebound late in the week.

The KOSPI surged on July 3 to reclaim 8,000. Investor sentiment had been sharply hurt after the index slid as low as 7,300 intraday. Bargain hunting, led by large semiconductor shares, helped recoup much of the losses. Volatility risk remains as the index swung sharply lower and then higher in a single day.

The recent drop is seen as driven more by an unwinding of concentrated flows than by a sudden deterioration in corporate earnings. With Samsung Electronics and SK Hynix accounting for a larger share of the KOSPI, single-stock leveraged exchange-traded funds tied to the two names and passive funds amplified index volatility. The market structure has strengthened in which the KOSPI as a whole swings when large semiconductor shares wobble.

The most important event this week is Samsung Electronics’ release of preliminary second-quarter earnings on July 7. The market is likely to use the results to check whether memory-chip conditions and AI demand are translating into actual profit.

Semiconductor shares have swung sharply even on small disappointments as expectations had been high. If results meet or beat the market’s bar, that could partly ease doubts that grew during the selloff.

SK Hynix’s push to list American depositary receipts in the United States is also a variable. SK Hynix has been a key pillar of the recent domestic semiconductor rally. If the investor base widens in the U.S. market, it could be a positive for medium- to long-term flows.

In the short term, expectations may already be partly reflected in the share price, so investors need to watch the possibility of profit-taking and greater volatility during the listing process.

At the centre of market unease is the debate over whether AI investment can be sustained. Questions have grown over whether expanding AI infrastructure spending by major U.S. tech companies can translate into real profit.

In particular, Meta’s computing rental issue was read by the market as a concern that AI equipment investment may have been excessive. If the AI investment cycle slows, it could weigh on semiconductors and the broader hardware value chain.

A positive reading is also possible. That view is that AI infrastructure investment has not stopped, but is a process of improving efficiency with existing resources and deploying secured cash back into expanding infrastructure.

If investment in AI and space infrastructure and data centres continues, as in contract cases involving SpaceX, Anthropic and Alphabet, demand for high-performance memory and power equipment could be structurally maintained.

Ultimately, the key for the market this week is how much earnings resolve the "doubts".

If Samsung Electronics’ preliminary results confirm a recovery in semiconductor conditions and SK Hynix’s ADR push proceeds without disruption, the KOSPI could try to settle above 8,000. If earnings fall short of expectations or worries about a slowdown in AI investment grow, the index could again face downward pressure.

Export indicators and the second-quarter earnings season will also be factors supporting the market’s lower bound. Given the recent improvement in exports and a wider increase rate, second-quarter results are likely to be favourable.

With concerns over conditions and earnings already largely reflected in stock prices, if actual results are not worse than expected, undervaluation appeal could come back into focus as uncertainty eases.

The high-rate environment also needs to be kept in mind. With expectations for U.S. rate cuts weakening and uncertainty over monetary policy increasing, it will be difficult for share prices to rise on expectations alone.

A selective approach is needed, centred on companies where profit estimates are rising, a high profit growth rate is sustained and improving operating profit margins are confirmed.

Looking across July, volatility is likely to continue. The U.S. June consumer price index and personal consumption expenditures price index, and the July Federal Open Market Committee meeting, remain ahead.

If inflation indicators come in above market expectations, concerns over rate hikes could come back into focus. That means July could be a month where volatility matters more than direction.

Moon Nam-joong (문남중), a researcher at Daishin Securities, said, "For global stocks in July, volatility is more important than direction," adding, "With variables such as employment, inflation and monetary policy piled up to be checked, this is a time when caution is needed."