Alphabet Earnings to Set Tone for Kospi as Markets Focus on AI Spending Plans

AI spending, rates, the won and policy in focus as four key variables

Brokerages say the Kospi's direction this week, from July 20 to July 24, will be shaped by a convergence of factors starting with Alphabet Inc.'s earnings, including whether it steps up artificial intelligence investment, foreign investor flows, won stability and government discussions on leveraged exchange-traded fund policy. If the company maintains its AI spending stance, semiconductor shares could attempt a rebound.

Yuanta Securities on July 19 identified Alphabet's earnings as the biggest variable for global equities this week. Lee Jae-won, an analyst at the brokerage, said Alphabet is one of the hyperscalers investing the most in AI service development alongside Microsoft, Amazon and Meta. The company is due to report at 5 a.m. Korea time on July 23.

Brokerages are focused less on the earnings themselves than on capital expenditure plans for future AI investment. Lee said Alphabet will probably increase its AI spending plan from current levels. Even if profitability in its AI business falls short of market expectations, concerns could ease if management uses the post-earnings conference call to clearly explain the rationale for higher investment and its strategy going forward.

If Alphabet cuts its AI spending plan or leaves it unchanged, investors could take that as a sign that AI-related demand is no longer as strong as before. That would weaken expectations for growth in the AI industry and could hurt sentiment toward semiconductor and AI-related companies in South Korea as well as the US.

Shinhan Securities said South Korea's stock market may enter a phase this week in which it stabilizes after the recent sharp decline and tries to rebound. Investor sentiment could gradually recover as markets assess geopolitical risks in the Middle East and earnings from major US companies.

Kang Jin-hyuk, an analyst at the brokerage, called Alphabet's earnings the most important event of the week. Market sentiment will likely hinge on how much the company plans to invest in AI and what it says about shortages of AI semiconductor supply and long-term supply agreements, or LTAs.

Kang also said South Korean bank shares could extend gains after the Bank of Korea raised its benchmark interest rate to an annual 2.75%. Higher rates generally help improve bank profitability. Still, investors should watch for a possible sell-on-news reaction if the benefits of the rate increase have already been priced in.

The won may also stabilize against the dollar. Kang said the currency could strengthen to around 1,480 won per dollar as SK Hynix and Hanwha Ocean add dollar supply through forward sales. In those transactions, companies sell dollars they expect to receive in the future, which can support the Korean currency by increasing dollar supply in the market.

Kang also described the government's order to prepare supplementary measures for single-stock leveraged ETFs as a positive factor for the market. If investment rules are tightened, including through higher minimum deposit requirements, excessive concentration in specific stocks or leveraged products may ease and market volatility may decline somewhat.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com