[Practical Finance] KOSPI Taking a Breather, Depends on Q1 Earnings

Semiconductor Industry Expected to Pass Bottom
Impact of China's Reopening
9 Consecutive Trading Days of Gains

Foreign Investors Leading the Rally
13 Consecutive Trading Days of Net Buying

For the Market to Fully Rebound
Corporate Earnings Forecasts Must Improve

[Asia Economy Reporter Kwon Jae-hee] The KOSPI, which has risen sharply since the new year, is trading at around 2431.33 as of 9:30 a.m. on the 25th. This is the result of a combination of factors including a slowdown in U.S. inflation, the rise of the Korean won against the dollar, China's reopening movements, and expectations that the semiconductor industry has passed its bottom. However, it is uncertain whether this upward trend will continue.

KOSPI Rises for 9 Consecutive Trading Days Since the New Year

According to the securities industry, the KOSPI closed higher for nine consecutive trading days starting from January 2. This is the first time in 27 months that the KOSPI has risen for nine consecutive trading days. Compared to the beginning of the year, the KOSPI has increased by about 8.54%. However, after reaching a closing high of 2399.86 on January 16, it has since declined, entering a consolidation phase.

The sharp rise in the KOSPI this year is attributed to a combination of factors including the rise of the Korean won against the dollar, China's reopening movements, and expectations that the semiconductor industry has passed its bottom.

On the 25th, the won-dollar exchange rate opened at 1233.0 won, down 2.5 won from the previous trading day. This is a steep drop compared to the record high of 1439.8 won on October 21 last year. As the exchange rate fell, the undervaluation appeal of the Korean stock market increased for foreign investors, leading to net buying in the market.

Expectations for China's reopening also enhanced the attractiveness of the Korean stock market. Korea's export share to China was as high as 22.9% last year, so if the Chinese economy returns to normal, Korea's export volume could further expand.

Han Ji-young, a researcher at Kiwoom Securities, said, "After China abolished its zero-COVID policy, the reopening provided a momentum for the rise in stock prices of domestic Chinese consumption-themed stocks. From an economic perspective, the rebound of the Chinese economy due to reopening seems to be only a matter of time, and similar to around 2008, it is likely to serve as a buffer against the global economic slowdown as well as a lever for increasing Korea's exports."

Despite concerns caused by the Samsung Electronics earnings shock, expectations that the semiconductor sector has passed its bottom have grown. This is considered one of the factors that heated up the stock market this year. The top two stocks most purchased by foreigners this year are Samsung Electronics (1.07 trillion won) and SK Hynix (397 billion won).

Kim Ji-san, a researcher at Kiwoom Securities, analyzed, "Since earnings estimates for semiconductor companies continue to be revised downward this year, further declines are expected to be limited, and the semiconductor industry is expected to pass its bottom in the first half of the year."

Foreign Investors Leading the Rally... Will Net Buying Continue?

Foreign investors have net bought for 13 consecutive trading days from January 2 to 18. During this period, foreigners net purchased stocks worth a total of 3.5 trillion won. In contrast, institutions net sold 515.8 billion won and individual investors net sold 3.046 trillion won during the same period. In other words, foreigners absorbed the volume sold by institutions and individuals.

The foreign investors' net buying rally is attributed to the recent sharp depreciation of the won-dollar exchange rate, which highlighted the undervaluation appeal of the domestic stock market. Foreign capital appears to have flowed into the Korean stock market, aiming for both capital gains and foreign exchange gains. Lee Jae-seon, a researcher at Hyundai Motor Securities, analyzed, "As the won's depreciation widened, the Korean stock market became relatively cheaper from the perspective of foreigners, increasing its attractiveness."

There are also expectations that foreign investors' net buying will continue as the won-dollar exchange rate is forecasted to decline further. Hana Securities predicted that the won-dollar exchange rate could fall to the 1150 won level. Accordingly, foreign buying could increase further.

However, there are also concerns that foreign investors' supply and demand may have limits since the Korean stock market is in a short-term rising phase rather than a long-term bull market. For the KOSPI to break through the 2400 level and enter a full-fledged rebound phase, corporate earnings forecasts for the first quarter must improve significantly.

Kim Sung-geun, a researcher at Mirae Asset Securities, said, "Last year was a phase where valuations shrank due to inflation and the U.S. Federal Reserve's rapid interest rate hikes, but going forward, growing concerns about a recession and corresponding downward revisions of earnings will play a bigger role. Considering the possibility of worsening economic conditions, there is room for further downward revisions of corporate earnings."

Han Ji-young of Kiwoom Securities diagnosed, "For the stock market to rebound fully, earnings forecasts need to improve, but the KOSPI's operating profit outlook shows it has not yet escaped the earnings recession cycle. This suggests that the upper limit of the stock market will remain limited until earnings forecast improvements materialize."

This content was produced with the assistance of AI translation services.