KOSPI Breaks 2200 Level... "This Is the Real Bottom" vs "There’s a Bunker Below the Basement"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] As the KOSPI plunged below the 2200 level for the first time in 2 years and 2 months, debates over whether the KOSPI has hit its bottom continue. There are conflicting views: some argue that the current price is the "true bottom" and that a box range market will persist, while others contend that since the psychological support level of 2200 has been breached, predicting the lower bound is meaningless, and the possibility of falling below the 2000 level cannot be ruled out.

With the KOSPI breaking below the psychological support level of 2200, the "true bottom" theory is spreading in the securities industry. Despite the lack of rebound momentum due to global tightening policies, economic recession, poor corporate earnings, and the relative strength of the US dollar caused by the weakness of the euro and pound, the KOSPI is expected to show a box range market at the bottom as it has hit new yearly lows.

Kim Younghwan, a researcher at NH Investment & Securities, said, "Except during the financial crisis, the KOSPI bottom during recessions was often formed at a price-to-earnings ratio (PER) of around 8 times." He added, "Applying this to the current KOSPI 12-month forward earnings per share (EPS) of 249.7 points, the 2050 level is the bottom." He further noted, "Even if the KOSPI temporarily undershoots past previous low valuations, the period will not be long."

Na Jung-hwan, a researcher at Cape Investment & Securities, also analyzed, "There are concerns that the KOSPI index could fall below 2000, but considering that the bottom during the financial crisis was around 2050, this is an excessive worry."

Korea Investment & Securities, Hana Securities, and DB Financial Investment also suggested the KOSPI bottom for October to be around the 2100 level.

Advice was also given to approach conservatively during these difficult times. Kim Daejun, a researcher at Korea Investment & Securities, said, "Since the corporate net income estimates for Q3 and Q4 may continue to be revised downward, now is a time to wait a bit longer." He advised, "Given the unfavorable investment environment, it is necessary to adjust portfolios focusing on sectors like automobiles and transportation, where earnings estimates are steadily increasing."

On the other hand, some pessimistic views are gaining traction, suggesting that the KOSPI could fall below the 2000 level in this downturn.

Heo Jaehwan, a researcher at Eugene Investment & Securities, said, "Assuming that the profits of Korean listed companies next year will decrease by at least 5-10% compared to this year, the appropriate KOSPI level would be between 1920 and 2020." He added, "We should keep open the possibility that the KOSPI index may fall below 2000."

Kim Hyungryul, head of the Research Center at Kyobo Securities, described the stock market outlook for next month as a "journey to the underworld." Kim said, "While fundamental indicators to be announced from next month may suggest a relaxation in the degree of monetary policy tightening, this cannot be a logical basis for viewing the index as bottomed and buying stocks at the low point."

Lee Kyungmin, head of the Investment Strategy Team at Daishin Securities, also said, "The medium- to long-term downtrend of the global stock market, including the KOSPI, is becoming more solid," and warned, "Premature bottom calls are to be avoided."