A sharp divergence between large-cap and small-cap stocks has emerged on the Korean stock market this month, with the KOSPI large-cap index plunging 20.6% from July 1 to July 16 while the small-cap index fell just 1.6%. The rotation is driven by a sell-off in semiconductor heavyweights and a flight of retail money into theme stocks and defensive sectors.
Semiconductor rout hits large caps
The KOSPI large-cap index dropped 20.6% in the first half of July, underperforming the broader KOSPI's 19.5% decline. In contrast, the mid-cap index fell 6.2% and the small-cap index lost only 1.6%. This marks a sharp reversal from June, when large caps rose 0.9% while mid-caps and small caps tumbled 10.5% and 11.1%, respectively.
Samsung Electronics and SK Hynix, the two largest stocks by market cap, have led the decline. Samsung Electronics fell 23.7% this month, dropping from 334,000 won to 255,000 won, while SK Hynix lost 30.5%, sliding from 2.65 million won to 1.842 million won. Foreign and institutional investors have reduced buying amid concerns that semiconductor earnings may have peaked, hitting large caps broadly.
Small-cap theme stocks surge
Retail investors have piled into small-cap theme stocks, with Hanseong Industrial up 245%, Monami up 211%, and Enex up 162% — all classified as so-called "patriotic" theme stocks. The minimum market cap requirement for KOSPI listing was raised from 20 billion won to 30 billion won in July, which paradoxically attracted speculative short-term money to stocks at risk of delisting.
Mid-cap stocks in cosmetics and food & beverage have also outperformed. Cosmax rose 17%, Amorepacific Holdings gained 15%, and Kolmar Korea added 8%, supported by export optimism. Orion Holdings rose 8% and Lotte Wellfood gained 6%, benefiting from their defensive nature amid economic uncertainty.
Outlook for continued rotation
Analysts expect the rotation to persist. YUANTA Securities' Lee Jae-won noted that tighter regulations on single-stock leveraged ETFs and government KOSDAQ policies could channel more funds into mid- and small-cap growth stocks that have been neglected for long. Shinhan Securities' Lee Jung-bin pointed out that Samsung Electronics and SK Hynix's net profit growth may slow by the second quarter of next year, capping upside for semiconductors.
A barbell strategy — holding semiconductors as a core while adding auto, banking, and cosmetics stocks with visible earnings — is being recommended. However, the overheating of theme stocks carries high volatility, and investors are advised to weigh sector earnings and policy changes carefully.