Korean stocks defied conventional market expectations since mid-May, with declining oil prices and stabilizing interest rates failing to boost traditional growth sectors. SK Securities analyst Kang Dae-seung identified in a report published on the 2nd that money is shifting away from large-cap semiconductor stocks toward previously neglected sectors including semiconductor equipment and power equipment. The KOSPI's upward momentum slowed noticeably from mid-May even as favorable conditions emerged. Kang attributed the pattern to an unwinding of sector concentration that had kept capital locked in verified large-cap names during periods of high oil prices and high interest rates. The shift marks a departure from earlier 2026 dynamics when broad economic optimism lifted consumer-related sectors alongside technology.
High Oil Prices and High Rates Concentrated Capital in Large-Cap Semiconductors
Kang explained that high oil prices increase corporate costs and cool economic activity, while high interest rates make deposits and bonds attractive alternatives to equities. Under these conditions, investors who chose stocks limited purchases to names with visible earnings verification. This mechanism funneled capital into large-cap semiconductor stocks while other sectors remained neglected. The analyst compared the behavior to farmers planting seeds only in proven fields during expected poor harvest years. Progress in ceasefire negotiations removed these constraints, triggering capital rotation away from concentrated positions.
Money Rotates to Equipment and Power Sectors as Constraints Ease
The current rotation differs from patterns observed earlier in 2026. In early 2026, US economic growth forecasts rose to 3% alongside rate cut expectations, creating broad optimism that lifted consumer-related companies. The present rotation concentrates gains in sectors directly tied to government and corporate spending — banks, housing construction benefiting from affordable housing legislation, and capital goods — while essential consumer retail and food sectors remain excluded. Kang stated that the Korean version of this unwinding may appear as increased allocation to semiconductor equipment and power equipment stocks. These AI capital expenditure-related sectors moved in tandem with KOSPI semiconductors at the start of 2026 but diverged from May onward. The rotation occurs within AI CAPEX-related industries rather than representing a wholesale shift away from the leading sector, with the spotlight moving from large-cap semiconductors to adjacent equipment and power infrastructure.
Analyst Sets WTI $80 and 4.5% Rate as Trigger Thresholds for Position Shifts
Kang established two specific conditions for the rotation scenario: WTI crude oil must remain below $80 per barrel, and interest rates must stay within 4.5%. If WTI exceeds $80 or US rates rise above 4.5%, economic uncertainty and valuation pressure will return, likely driving capital back to large-cap semiconductor positions. Kang emphasized these thresholds as triggers for position adjustments. The easing of valuation pressure from high rates created an environment where semiconductor equipment and power equipment stocks, which underperformed in May and June, can gain relative strength.
FAQ
Why did declining oil prices and interest rates not boost Korean semiconductor stocks as expected?
SK Securities analyst Kang Dae-seung stated in a report published on the 2nd that the easing of high oil prices and high interest rates removed constraints that had concentrated capital in large-cap semiconductor stocks, causing money to rotate to previously neglected sectors including semiconductor equipment and power equipment rather than further boosting large-cap names.
What are the trigger conditions for capital returning to large-cap semiconductor stocks?
Kang specified two thresholds: if WTI crude oil rises above $80 per barrel or if interest rates exceed 4.5%, economic uncertainty and valuation pressure will return, likely driving capital back to large-cap semiconductor positions.
Which sectors are benefiting from the current rotation in Korean stocks?
The rotation is occurring within AI capital expenditure-related industries, with capital moving from large-cap semiconductors to semiconductor equipment and power equipment stocks that were neglected during May and June despite sharing the AI investment theme.
