[KOSPI 3300 Approaching] Accelerated Corporate Earnings Recovery in Second Half... From 3300 to 3700, Keep Running

Three Consecutive Days of Record Highs Signal Positive Outlook
Concerns Over Inflation and Tapering Risks
Uptrend After Correction...Focus on Growth and Consumer Stocks

[Asia Economy Reporter Song Hwajeong] The KOSPI is rewriting its all-time high day after day, approaching the 3300 level. Experts predict that in the second half of the year, the KOSPI could surpass 3500 and reach as high as 3700.

According to the Korea Exchange on the 17th, the KOSPI closed at 3278.68 the previous day, marking its third consecutive record high. It has broken its all-time high four times this month alone, getting one step closer to the 3300 level. On the 16th, it even surpassed the 3280 mark during trading hours. The KOSPI has risen 14.1% since the beginning of this year and has increased 4.6% in the past month alone.

Despite concerns about inflation and U.S. tapering (asset purchase reduction), the KOSPI has steadily climbed to new highs. The KOSPI first broke through the 3000 mark on January 7 based on closing prices, then reached the 3200 level on January 25. On April 20, it rose to the 3220 level, setting another record high, and on May 10, it broke the record again at 3249.3 after two weeks. It then closed at 3252.12 on the 7th, surpassing the 3250 level. From the 14th, it set new record highs for three consecutive days, approaching the 3300 level by just 20 points.

Surpassing 3500 in the Second Half

The securities industry expects the KOSPI to exceed 3500 in the second half. An analysis of the second-half KOSPI forecast bands from 12 securities firms by Asia Economy showed an average upper limit of 3519.16 and an average lower limit of 3013.63. Some forecasts even predict it will reach as high as 3700.

The rise in the KOSPI is expected to be driven by corporate earnings. Yoon Chang-yong, Head of the Research Center at Shinhan Financial Investment, said, "While flexibility is needed to respond to cyclical fluctuations in the second half, the relative advantage of earnings recovery will ultimately lead to improved profitability and increased dividend payout ratios," adding, "Based on the mid- to long-term valuation path and the possibility of further earnings upgrades, the KOSPI will move between 3000 and 3700 in the second half of this year."

Yoo Jong-woo, Head of the Research Center at Korea Investment & Securities, explained, "The expected KOSPI band for the second half is 3000 to 3550, with the upper limit corresponding to a price-earnings ratio (PER) of about 13.5 times and the lower limit at a PER of 11.5 times, which is also the key 3000 level," adding, "The speed of corporate earnings recovery is faster than market expectations, reflecting the possibility of the highest quarterly operating profit for the KOSPI in the third quarter."

Concerns about inflation and tapering, which affected the market in the first half, are expected to remain variables in the second half. Kim Ji-san, Head of the Research Center at Kiwoom Securities, said, "Issues related to inflation and tapering could weigh on stock prices," adding, "Currently, it is accepted as a given that some liquidity will decrease, and we need to continue monitoring other factors such as U.S.-China tensions and the resurgence of COVID-19 in emerging markets." Shin Dong-jun, Head of the Research Center at KB Securities, forecasted, "There may be market corrections in July and August due to tapering and a slowdown in earnings growth, but the upward trend is expected to resume afterward."

Improved Supply and Demand in the Second Half... Focus on Growth Stocks and Consumer Goods

The supply and demand situation is also expected to improve significantly in the second half. Shin said, "Individual investors are expected to face supply and demand burdens until summer but improve afterward, while foreign investors will continue selling but switch to net buying after summer." Kim Hak-gyun, Head of the Research Center at Shin Young Securities, predicted, "Structural money movement will continue to bring individual funds into the stock market, and redemptions from equity funds will come to an end." The weak dollar is expected to boost expectations for foreign capital inflow in the second half. Yoo analyzed, "The global liquidity environment will be favorable for the stock market in the second half," adding, "A weak dollar is expected in the second half, which will act as a factor attracting foreign capital inflows into the domestic stock market."

Growth stocks and consumer goods were highlighted as sectors to watch in the second half. Kim Ji-san said, "Until the third quarter, cyclical stocks and consumer goods will be attractive, but in the fourth quarter, when the market breaks out of the box range, semiconductors, automobiles, and growth stocks will have the upper hand." Yoo said, "In the short term, sectors like cyclical consumer goods and finance, which can benefit from demand-driven inflation, are expected to perform well," adding, "However, if tapering signals appear during the fourth quarter, sector rotation may occur." He further added, "Among high-valuation sectors, it is necessary to consider buying timing for secondary batteries, renewable energy, and software sectors, which are expected to enter a structural growth phase."