Will KOSPI Reach 3000 in the Second Half?... Depends on US Interest Rate Path

Securities Firms' KOSPI Expected Band Upper Range 2900-3100 in H2
Expected to Be Influenced by US Interest Rate Path
Key Themes: AI, Value-Up, Turnaround, Interest Rate Cut Cycle

After a pause in April, the KOSPI has recovered to the 2700 level this month, and the market is already turning its attention to the stock market trends in the second half of the year. Securities firms expect the KOSPI to rise to the 3000 level in the second half. The key factor determining the direction of the stock market in the second half is still expected to be whether the U.S. will cut interest rates.

According to the financial investment industry on the 13th, as securities firms have recently been releasing their forecasts for the stock market and economy in the second half, the upper range of the expected KOSPI band for the second half is between 2900 and 3100. Shinhan Investment Corp. projected the KOSPI band for the second half to be between 2550 and 3000, while Hyundai Motor Securities suggested 2500 to 3000. Daishin Securities set it at 2530 to 3110, raising this year's KOSPI upper limit from the previous 2850 to 3110. SangSangin Securities forecasted 2500 to 2900. Hana Securities anticipated that the peak would vary depending on the U.S. interest rate cut scenario, suggesting a second-half KOSPI peak of 2950 if rates remain unchanged, but expecting it to rise to 3100 if rates are cut.

The most important variable determining the index's direction in the second half is expected to remain the path of U.S. interest rates. Lee Jaeman, a researcher at Hana Securities, explained, "The dominant variable in the stock market in the second half remains interest rates," adding, "The Federal Reserve's interest rate policy scenarios include holding rates steady, cutting, or raising them. If rates are held steady, the KOSPI's second-half peak is expected to be around 2950; if rates are cut, it is expected to reach 3100. Even assuming a one-time rate hike after holding rates steady, it could cause a monthly index drop of more than 10%."

The turning point for a strong stock market in the second half is expected to be the timing of the rate cut. Lee Kyungmin, a researcher at Daishin Securities, said, "If the Fed's stance changes based on inflation levels determined the stock market fluctuations in the first half, then the timing of the rate cut will be crucial in the second half," adding, "Starting with a rate cut in July, we expect a 50 basis point (1bp=0.01 percentage point) cut. In the second half, a strong upward trend is expected, supported by the start of a real rate cut cycle, the U.S. economy passing its bottom, and strengthening recovery in China's economy." He added, "Korea will continue its resilient rise, supported by improvements in the semiconductor industry and earnings, as well as a rebound in growth stocks."

Other factors expected to influence the stock market in the second half include corporate earnings, exports, China's economy, and the U.S. presidential election. Roh Nokgil, a researcher at Shinhan Investment Corp., said, "The KOSPI is expected to reach its annual peak between the end of the third quarter and the beginning of the fourth quarter," adding, "It is necessary to consider factors such as third-quarter earnings improvement, continuation of the manufacturing inventory cycle, expansion of artificial intelligence (AI) investment, easing uncertainty in China's manufacturing economy, slowing earnings momentum in the fourth quarter, peak export growth rate, emerging fiscal issues around the U.S. presidential election, and the peak of economic momentum."

There are opinions that the KOSPI's valuation is at an attractive level. Lee Jaeseon, a researcher at Hyundai Motor Securities, said, "Compared to China, which is similarly undervalued within Asia, the discount rate has increased, making the Korean stock market's appeal valid," adding, "If the global inventory cycle rebound expectations remain high, earnings reliability is considered strong. If the keyword for Asian stock markets from foreign investors is value-up, then a valuation rerating level similar to what Japan's TOPIX received is possible. Considering this, the KOSPI is expected to attempt to enter the 3000 level in the second half."

The themes to watch in the second half include AI, value-up and other policy momentum, turnaround, and the interest rate cut cycle. Researcher Lee Kyungmin said, "The four themes to watch in the second half are AI, policy momentum, turnaround, and the interest rate cut cycle. Among these, attention should be paid to stocks that combine earnings and growth momentum," adding, "Regarding AI, I recommend Samsung Electronics, SK Hynix, and Samsung Electro-Mechanics. As beneficiaries of the value-up program, I suggest KB Financial Group, Samsung Life Insurance, and Hyundai Motor, which are expected to strengthen shareholder-friendly policies based on stable earnings."