[Practical Finance] 'Foreigners, Semiconductors, Weak Dollar'... Key Words for the Stock Market's '3000 Peak' in the Second Half

Conflicting Optimism and Pessimism... KOSPI Large-Cap Stocks Expected to Trade in Range
Moderate Rise Expected Amid Boxed Market
Semiconductors, Secondary Batteries, and Entertainment Stocks Promising

“KOSPI could reach the 3000 level” vs “The market will remain in a box range.” Amid conflicting pessimistic and optimistic views on the stock market in the second half of the year, foreign demand, a weak dollar, and semiconductor industry improvement were cited as conditions for the rise of our stock market. While the first half saw a KOSDAQ rally led by secondary batteries, it is expected that in the second half, the leading stocks will shift to semiconductors, resulting in a stock market dominated by large-cap KOSPI stocks.

Among the second-half KOSPI forecasts released by various securities firms, the most optimistic is DB Financial Investment. DB Financial Investment projected the KOSPI upper limit to reach as high as 3000. However, this forecast is conditional on the expectation of interest rate cuts by the U.S. Federal Reserve (Fed). Hyunki Kang, a researcher at DB Investment Securities, said, “The possibility of the Fed lowering the benchmark interest rate will lead the economy upward,” adding, “An expansion of the short- and long-term interest rate spread could trigger a financial market rally, and improved purchasing power may drive an earnings-driven market, so the stock market in the second half of this year could experience an unexpectedly strong rally.”

In contrast, the most conservative forecast came from Samsung Securities. Samsung Securities set the KOSPI band for the second half at 2200 to 2600. Considering that the KOSPI index is currently trading above 2550, this implies an upside potential of only about 1 to 2%. Like DB Financial Investment, Samsung Securities also cited expectations of interest rate cuts as a condition for the rise of our stock market, but unlike DB Financial Investment, it expects limited interest rate cut expectations in the second half. Yonggu Kim, a researcher at Samsung Securities, said, “The significant rise in our stock market in the first half was due to expectations of Fed rate cuts,” and forecasted, “However, from the second half, these expectations will fade, and the gains will be given back.” Furthermore, although the upside expectations are limited, the downside is also likely to be capped at around 10%, so the KOSPI 2200 level is viewed as a medium- to long-term bottom considering domestic and international uncertainties.

Besides these, most securities firms predicted a moderate rising market within a box range. The second-half KOSPI bands were forecast as follows: Daishin Securities 2380?2780, Korea Investment & Securities 2400?2800, Hana Securities 2300?2700, IBK Investment & Securities 2350?2800, and Meritz Securities 2500?2900. Junho Byun, a researcher at IBK Investment & Securities, said, “Analysis since 1980 shows that the KOSPI’s second-half volatility is closely related to the change in next year’s economic growth rate compared to this year,” diagnosing, “This year’s KOSPI operating profit is likely to suffer a severe decline of about -20% year-on-year due to the semiconductor downturn, but next year there is a high possibility of improvement due to the base effect.” He added, “Considering current consensus estimates, the KOSPI’s estimated growth rate in the second half is about 20%.”

Heechan Park, a researcher at Mirae Asset Securities, said, “Even if the Fed stops raising interest rates, the success or failure of stock investment depends on the timing of entering a recession,” and assessed, “Given the current decline in U.S. service sector jobs, it seems that more than half a year remains before a recession, so if there is no recession immediately in the second half, there is a high possibility of more investment opportunities in the stock market.”

Weak Dollar Outlook... Favorable Foreign Demand

Most securities firms expect the global tightening cycle that has continued since last year to end, shifting from a strong dollar trend to a weak dollar trend. Typically, a weak dollar and strong Korean won increase the attractiveness of our stock market to foreign investors, as they can also expect foreign exchange gains. Hyunjong Jung, a researcher at Korea Investment & Securities, said, “Starting from June, the U.S. benchmark interest rate hikes will stop, easing the pressure for a strong dollar,” diagnosing, “This will stimulate domestic export conditions and serve as an investment opportunity for large growth stocks including semiconductors.” He added, “As China’s economic recovery accelerates in the second half, semiconductor market recovery and improved trade conditions will push the USD/KRW exchange rate back to the mid-1200 won range.”

Donggil Noh, a researcher at Shinhan Investment Corp., also explained, “Historically, when our stock market experienced strong rallies, it was always under a weak dollar environment,” adding, “The service-sector-led economic downturn is a condition that continues the weak dollar environment in the second half, creating a favorable environment for foreign capital inflows.”

Researcher Noh further said, “Foreign investors have maintained a net buying trend in the KOSPI since March or April this year, with cumulative net purchases since July last year amounting to about 19 trillion won, which is the largest scale since the 2003 credit card crisis and the 2008 global financial crisis,” forecasting, “Considering the cumulative net buying trend by foreigners, there is an estimated additional buying capacity of up to about 10 trillion won by year-end.” However, he advised that short-term fluctuations may occur due to worsening U.S. employment data expected in the third quarter, but considering the potential recovery of China-sensitive stocks and IT sector by year-end, this period could be an opportunity to increase portfolio weight.

Semiconductors as Leading Stocks... Stock Market Led by Large-Cap KOSPI Stocks

If the first half was a KOSDAQ rally led by secondary batteries, the second half is expected to continue with a KOSPI stock market led by large-cap stocks such as semiconductors. Experts commonly agree that attention should be paid to semiconductors, which account for the largest share of Korea’s export items. Heejin Kwon, a researcher at KB Securities, said, “Semiconductors recorded the lowest performance among the top six export items since last November, but this was due to the price decline of memory semiconductors, which account for about half of semiconductor exports,” adding, “However, the average selling price (ASP) of major semiconductor companies is expected to turn upward in the second half.” He analyzed, “Considering the co-movement between Samsung Electronics’ DRAM ASP and semiconductor export growth rate, the semiconductor export bottom in the second quarter will be confirmed without major surprises, and since domestic semiconductor inventory has already peaked, a declining inventory trend will be confirmed after the second quarter.”

Domestic semiconductor inventory has already peaked. In the March industrial activity report, the inventory-to-shipment ratio of the ICT industry decreased from 2.2 times in February to 1.7 times, with the semiconductor ratio sharply dropping from 2.5 times in February to 1.6 times. Semiconductor inventories of global manufacturers and customers are also expected to show a declining trend after the second quarter.

The improving outlook for the semiconductor industry is also confirmed by foreign investors’ net buying spree of Samsung Electronics. Foreigners have purchased a total of 12.4986 trillion won worth of stocks in the KOSPI from January 2 to May 26 this year, of which about 75%, or 9.2754 trillion won, was invested in Samsung Electronics. This is a complete turnaround from the three consecutive years of net selling of Samsung Electronics during the COVID-19 pandemic from 2020 to 2022.

Additionally, experts identified secondary batteries and entertainment stocks as sectors that will lead the stock market in the second half. Heechan Park, a researcher at Mirae Asset Securities, explained, “There is a view that the upward momentum of secondary batteries, which led the market in the first half, has ended, but this is limited to KOSDAQ stocks like EcoPro, and the market capitalization share of the three large companies (LG Energy Solution, LG Chem, Samsung SDI) has not significantly increased since last fall, which is an opportunity factor.”

Entertainment stocks are also regarded as entering a structural growth phase, and the securities industry views them as a leading sector for our stock market. Jinhae Ji, a researcher at Shinhan Investment Corp., analyzed, “K-Entertainment stocks are no longer just reopening-related stocks but have entered a structural growth phase,” adding, “The unique artist development system, systematic fandom management, and secondary revenue streams through merchandise and platforms that only K-Entertainment has represent limitless opportunities.”