Before the bell: South Korean stock market crashes 12% on Wednesday

Wednesday was a turbulent day on the Asian markets, with heavy losses in South Korea and Japan. In Europe, Bayer published its quarterly results this morning.

The news from Iran continues to unsettle financial markets, although a clear difference can be observed between continents. The Euro Stoxx 50 fell 3.6% on Wednesday. The banking sector was hit hard, with losses at Crédit Agricole (-4.4%), Société Générale (-4.9%) and BNP Paribas (-4.1%). Airline stocks such as Air France-KLM (-8%) also lost ground, as did steel producers such as Aperam (-10.4%) and ArcelorMittal (-7.6%). While Europe is bleeding, the impact on Wall Street once again remained limited. The S&P 500 lost 0.9%. The US stock market is full of technology companies that are barely affected by Iran, while energy companies benefit from higher oil prices.

In Asia, however, Wednesday morning saw a striking trading day. The South Korean Kospi index is down 12.2%, after the index had already fallen 7.2% on Tuesday. This does not say so much about the Iran crisis, but rather about the sharp rise of the South Korean stock market earlier this year. Even after the steep decline, the index is still 18% higher than at the beginning of January. In Japan, the Topix index is down 3.7% this morning. In Belgium, the strong figures from property developer Immobel stand out this morning. The group managed to turn a loss of 94 million euro last year into a profit of 48 million euro. Healthcare real estate company Aedifica reports that after the exchange offer it now holds 80% of the shares of Cofinimmo. Bayer published its quarterly results this morning and expects to report stable profit and revenue in 2026. Free cash flow will however be strongly negatively affected by settlements in the lawsuits related to Roundup. The price of a barrel of Brent oil is also rising this morning towards 83 dollar. Today Broadcom, Abercrombie & Fitch, Wix and Cracker Barrel will publish their annual results.

Do you already know Broadcom?

What does Broadcom have in common with companies such as Tesla and Meta? The three companies constantly switch places in the ranking of the largest listed companies in the world. With a market value of around 1.5 trillion dollars, Broadcom often fluctuates between sixth and eighth place in the United States. Yet many Belgian investors do not know exactly what the company does. That is because Broadcom does not belong to the well-known group of the “Magnificent Seven.” In essence, Broadcom designs specialised chips for data centres, networks and AI infrastructure. The big difference with Nvidia is that Broadcom develops custom chips for technology companies such as Google, Meta and Apple. Those companies increasingly prefer their own specific chip design rather than a standard chip. In addition, Broadcom partly transformed itself into a software company after the acquisition of VMware for 69 billion dollar. As a result, it now also manages important software platforms for cloud and enterprise infrastructure. Broadcom will publish new quarterly results shortly. Analysts expect revenue of around 19.1 billion dollar and earnings per share of 2.02 dollars. In the previous quarter, profit still rose spectacularly by 97% to 8.5 billion dollar. Expectations are therefore high for this important infrastructure player in the AI sector.

CrowdStrike: why I do not want to pay for perfection

Call me old-fashioned, but as an analyst I have a certain aversion to fast-growing sectors where a successful future is already largely priced into the share price. Yesterday evening the cybersecurity specialist CrowdStrike published its results, which is one of those types of companies. Annual recurring revenue came in at 5.25 billion dollars, representing growth of 24% year-on-year. Next year that revenue is expected to rise to around 5.9 billion dollars. Yet there is one figure in the story that I cannot get out of my head. CrowdStrike is currently valued at around 99 billion dollars. That means investors are paying almost 17 times next year’s revenue for the company. On top of that, growth is clearly slowing. For years CrowdStrike grew rapidly. Today the expected growth is around 12%. And that is revenue, not profit. According to the company itself, the group will generate about 1.25 billion dollars in profit next year. Let one thing be clear: I strongly believe in cybersecurity. It is a sector with structural growth, high margins and a lot of recurring revenue. Customers also do not quickly switch security platforms. But for that uncertain dominant position of tomorrow you are already paying today. CrowdStrike operates in a competitive market with players such as Microsoft as competitors. Is it then logical to pay 17 times revenue for a company that is still growing at about 12%? Moreover, the company distributes about 1 billion dollar annually in stock-based compensation, or almost the entire profit. That is where I drop out. If CrowdStrike ultimately becomes the dominant cybersecurity player, you might be able to justify the current valuation. But if that does not happen, investors are already paying today for a perfect future scenario. And that is a scenario I prefer to approach with some caution as an analyst.

Did you know…

that the South Korean stock market has not fallen this sharply on a single day since 9/11? Analysts point out that many investors bought shares on margin, which further amplified the decline.

This article was translated from Dutch and was originally published on Spaarvarkens.be.