Profits Made the Summer; Funding Made the Winter

Korea's market has passed through three seasons this year. From January to late April, all three rose despite a major shake in March. From late April to late June, only the two companies rose. From late June, all fell.

Winter was not there from the start. The rest of the market also more than doubled, rising +109.7% from early 2025 to June 22 this year. Winter began in late April, when spring ended. During those two months, money moved from smaller stocks to the two companies. After June 22, the two companies fell more, but the rest fell alongside them.

The longer view shows an even larger gap. From the first trading day of 2016 to 10/28, the two-company index rose to 15.2x its starting value; the rest gained +56.6%. About 69% of the KOSPI's rise from early 2025 to 6/22 came from the two companies (estimated as starting weight × return).

Market comparisons in this edition are fixed to data through 10/28. We compare concentration and breadth on the same basis, without appending later closes.

Concentration is not one number. Boboo from Sky uses four rulers. ① Market capitalization: how much of market value belongs to a few stocks? ② Valuation and profits: how expensive are the leaders relative to what they earn? ③ Trading: where is trading money concentrated? ④ Funding: where does new money go?

Trading concentration increased after the price peak. On 7/8, the two companies accounted for 51.0% of KOSPI and KOSDAQ share trading value. Adding trading in 16 single-stock leveraged and inverse ETFs tracking them brought the amount to 83.1% of share trading value (ETF trading is excluded from the denominator). Trading in 14 leveraged ETFs from 5/27 to 7/24 totaled KRW 392 trillion, more than the entire KOSDAQ (KRW 359 trillion) over the same period. July KOSDAQ trading value was 16.6% of KOSPI trading value, less than one-third of January's 55.1% (KRX data, recalculated by Boboo from Sky).

A large ① and small ② mean concentration in profits. Large ① and ③ alongside shrinking ④ mean concentration as liquidity dries up. Korea now has large ① and ③, and shrinking ④. Measure ② points the other way: the leaders are actually cheaper (Section 03).

This summer was not just a rise in valuations. It was a concentration of profits. Q3 operating profit was KRW 107.4 trillion in Samsung Electronics' preliminary results (10/12 report), and KRW 83.3 trillion in SK hynix's release (10/28). SK hynix's operating margin was 80%. The two companies' first-half net profit was KRW 253.1 trillion, 65% of the total for KOSPI-listed companies.

In bubbles, valuations ran ahead of profits. At the dot-com peak, the US top 10 stocks accounted for 27% of market cap but less than 20% of profits. In September 2023, the gap was still 10 percentage points, at 31.9% versus 21.9%★. Today it is 40.6% versus 36.1%. The gap narrowed because profits caught up, rather than because share prices fell.

Korea's two companies point in the opposite direction. Their profit share exceeds their market-cap share. They earned 63.1% of first-half operating profit, while their market-cap weight on 6/30 was 55.4%. Their share of estimated 2027 operating profit is 71.6%★, against a 50.3% weight on 10/28.

The market actually values the two companies at lower multiples. The KOSPI's overall 12-month forward P/E fell to 4.41x (10/20), down from 5.43x earlier this month. Semiconductors are below 3x; the rest excluding semiconductors is at 10.3x.

Reading (interpretation). A low P/E can be read as the market's guess that current profits will not last. Memory is an industry with large price swings. This summer's risk lies more in the earnings cycle than in a valuation bubble. Concentration caused by expensive leaders (2000) may unwind differently from concentration caused by leaders that actually earn a great deal (today; Section 07).

The short answer: it earns. But growth is smaller than it looks. In the exchange's first-half compilation, consolidated operating profit at KOSPI-listed companies excluding the two companies was KRW 143.3 trillion, up 75.6% from 1 year earlier. Net profit rose 119.7%. The numbers alone look like summer, rather than winter.

More companies are profitable. In the first half, 519 of 634 KOSPI companies (81.86%) reported a net profit, up from 485 (76.50%) 1 year earlier. On the KOSDAQ, 800 of 1,264 companies (63.29%) were profitable, 121 more than the 679 recorded 1 year earlier. It is hard to say that winter froze because those companies could not earn money.

But the consolidated figures contain echoes of summer. SK Square accounts for its roughly 20% stake in SK hynix using the equity method. Its first-half operating profit was KRW 27.5 trillion, about 8x the level 1 year earlier. This one company accounts for about 19% of consolidated operating profit excluding the two companies. The KOSDAQ's net-profit growth was also led by electrical and electronics companies, many of which supply semiconductor materials, components and equipment (−KRW 0.35 trillion → KRW 1.68 trillion). A substantial part of winter's profits came from memory's summer.

The companies' own operations are improving gradually. Separate operating profit excluding the two companies fell −3.7% in 2025, then rose +2.0%★ in this year's Q1 and +11.8%★ in the first half. Some industries saw falling operating profit. On a consolidated first-half basis, real estate swung to a loss; entertainment and culture fell −33.55%, transport and storage −17.71%, telecoms −10.01%, electricity and gas −6.98%, and transport equipment and components −6.17%★. Bank net profit fell −4.27%. Securities-company net profit, by contrast, rose +161%.

Valuations have fallen. The KOSPI's forward P/E excluding semiconductors fell from this year's peak of 14.5x to 10.3x, matching the 20-year average (10.4x). Earnings estimates rose over the same period. Estimated 2027 operating profit for KOSPI 200 companies excluding the two companies rose 15.1%★ in three months, from KRW 311 trillion to KRW 358 trillion. The two companies' increase was 5.5%. Profits held up or grew, while valuations fell.

The winter that cannot earn money lies in the tail. Zombie firms unable to cover interest from earnings for 3 consecutive years made up 32.6% of the KOSDAQ and 16.7% of the KOSPI in 2025. The KOSDAQ share was more than twice its 13.1% in 2017. The KOSPI share rose from 9.6% to 16.7% over the same period. In the first half, 36.7% of KOSDAQ companies still reported net losses.

The US winter side also earns well. Earnings growth is broad too. FactSet puts S&P 500 Q3 earnings growth at 29.5% from 1 year earlier (10/23, with 24% of companies reporting). The other 493 companies excluding the Magnificent 7 are at 27.7%. For Q4, estimates for the other 493 are 30.6%, above the Magnificent 7's 23.6%. That is the first time since Q4 2022. Earnings grew in 10 of 11 sectors; healthcare alone fell (−1.2%).

The other 493 also include AI beneficiaries. Excluding Micron and NVIDIA lowers Q3 growth from 29.0% to 20.0%. The Magnificent 7's Q3 figures are prerelease estimates and will change with earnings releases this week and in November.

US winter is frozen in valuations, rather than earnings. Midcaps, small caps and the equal-weight index are expected to grow earnings more than 20% this year, but their forward P/Es are 79–92% of their own long-run averages (comparisons within the same table). The US 10-year Treasury yield reached its yearly high of 5.31% on 10/5 and was still 5.05% on 10/28. The Fed held its policy rate at 3.75–4.00% on 10/28; the two dissenters favored a hike. A high discount rate cuts the value of more distant profits more heavily (interpretation).

In price terms, the US has not been entirely in winter this year. Through 10/28, total returns were similar for the cap-weighted S&P 500 ETF (SPY), +14.1%; equal-weight (RSP), +14.9%; and small caps (IWM), +15.0%. Russell 1000 value, at +19.3%, outperformed growth (+6.3%) through 9/30.

Taiwan is similar. Q2 net profit at Taiwan-listed companies was TWD 2.08 trillion, up 172% from 1 year earlier. TSMC earned about 34% of that (TWD 706.6 billion)★. Across the full compilation, 175 companies recorded their highest quarterly earnings per share★. TSMC's index weight (about 41–44%★) exceeds its profit share.

Winter has three faces. An earnings winter that cannot make money; a valuation winter that earns but sells cheaply; and a funding winter with no money to buy. We sort the preceding numbers into these three.

After the shock, money did not rotate within the market. We recorded the daily directions of the two companies and the rest. Excluding January, days when the two companies fell but the rest rose (internal rotation) occurred only 1–4 times per month. In October, there was 1 such day out of 18 trading days.

Among stocks that rose or fell over May, only 33.7% rose. The index was in summer, but most stocks were in winter. Some of the withdrawn money crossed the ocean. Korean retail investors were net sellers of US securities in April and May, then net buyers of about USD 13.1 billion in July–October (settlement basis; October covers 19 settlement days).

Reading (interpretation). Funding accounts for the largest part of Korea's winter. Profits mostly held up or grew, and valuations fell to average levels. But buying money left the market. In the US, profits and funding are mostly sound, while rates weigh on valuations. The unprofitable winter lies in the small-company tail in both countries. There is also a competing explanation: the September Fed hike and US 10-year yields around 5% reduced money available to risky assets worldwide, rather than only in Korea.

Compared with past bubbles, this concentration is among the highest in scale and lowest in valuation. Concentration unsupported by profits often ended with a shock. Korean KOSDAQ earnings were thin in 2000. In January–September 2001, the net margin of 431 KOSDAQ companies was 1.1% (2.9% a year earlier). Among 189 venture companies, a KRW 504.2 billion profit turned into a KRW 60.8 billion loss★.

Concentration has unwound along five paths. The importance of 1929–32 (②) is that the shock increased concentration instead of reducing it. A shock to the leaders differs from a shock to market-wide liquidity.

Five conditions for money to spread without a shock, and Korea today (observations, not judgments).

Why it matters that winter companies make money. A broadening rally (③) and profits catching up (④) are possible only when the rest actually earns money. Both Korea and the US already have half of that condition. The remaining half is funding: investor deposits need to grow again, cash returned by the two companies needs to circulate within the market, and rates need to fall (interpretation).

SK hynix disclosed a dividend of about KRW 14.1 trillion on 10/28, with a record date of 11/30. A record date is not a payment date. We must distinguish entitlement to a dividend from the date cash actually arrives. The disclosure alone does not tell us whether that money will return to Korean equities.

The five paths in this section connect to the three paths in the previous report, #31, “The Shape of a Bubble Shapes Its Deflation”.

We do not try to predict which path concentration will take. We record several needles each day instead. We keep the needles separate. We do not combine them into a single score.

Events to check after the cutoff. The schedule below was known through 10/28. Subsequent outcomes are not reflected in this edition.

What we still do not know.

• The domestic shareholders' share of cash returned by the two companies, and where that money will go.
• Where the withdrawn investor deposits went (deposits, MMFs, real estate or overseas).
• Q3 earnings trends in the rest of the market. KRX's Q3 compilation comes out in November.
• When memory prices will turn. That is the two companies' earnings cycle.
• Whether US yields will stay above 5%.

From a hot-air balloon, the summer and winter fields are visible together. The winter field is still growing underground. The wind (rates) and people's wallets (funding) determine when sunlight will reach it. We do not try to predict that day. We record the sunlit ground and the sprouts beneath it, every day.