Short-Term Overheating vs. Early Rally... Where Is the 'Samcheonpi' Headed? [Second Half Stock Market Outlook]

The KOSPI Surpasses Pandemic Rebound with a 15% Monthly Gain in June
Brokerages Forecast 3,600 by Next Year’s First Half
"Short-Term Corrections Possible... Should Be Viewed as Buying Opportunities"

As the KOSPI reclaimed the 3,000 mark for the first time in three years and five months, closing out the first half of the year, rosy outlooks for the second half are emerging one after another. While temporary corrections may occur due to short-term overheating and various internal and external factors, analysts believe that a trend-driven rally centered on existing leading stocks will likely continue.

The Era of 'Samcheonpi' Begins... "How High Can It Go?"

Despite escalating tensions in the Middle East, the KOSPI not only defended the 3,000 level but also broke through 3,100, further fueling optimism. Cho Suhong, head of the Research Center at NH Investment & Securities, stated, "Despite concerns over slowing exports and structural growth, the recent rally is the result of expectations for the resolution of discount factors in the Korean capital market, coupled with rapid net buying by foreign investors." He added, "If government policies are implemented as planned, the KOSPI could rise further to 3,600 by the first half of next year."

Kim Dongwon, head of research at KB Securities, noted, "During previous periods of dollar weakness, the KOSPI's price-to-book ratio (PBR) has risen from 0.6 times to as high as 2 times." He forecast, "If the trend of a weak dollar continues, it could trigger a super rally in the Korean stock market, especially in combination with government policies to improve the financial market structure." He set a KOSPI target of 3,240 for the first half of next year.

According to the Korea Exchange, the KOSPI's monthly return for June through the 24th was 15.05%, surpassing the previous record high of 14.30% set in November 2020. This represents even greater momentum than when global stock markets rebounded after the pandemic. Now, only about 200 points remain until the all-time high of 3,305.21 recorded on July 6, 2021.

'Ammunition' accumulated by retail investors is also substantial. According to the Korea Financial Investment Association, as of June 23, investor deposits (about 65 trillion won) and KOSPI margin loan balances (about 12 trillion won) are at their highest levels since 2022. Lee Jinwoo, head of research at Meritz Securities, explained, "When the KOSPI first broke through 3,000 in 2021, individual investors' net buying drove the index higher, but from the beginning of this year until now, the main net buyers have been pension funds." He added, "Given that individual net buying has yet to fully materialize, there is still room for further upside."

Signs of Overheating Everywhere... "Short-Term Corrections Unavoidable"

Not everyone is optimistic. Some argue that for the current rally to be sustained, fresh momentum must be provided. This is because the recent rally has been driven more by expectations for the new government's various pledges and the 'weak dollar' effect attracting foreign investors, rather than by structural improvements in Korea's capital market. Concerns also persist about the global competitiveness and future growth potential of Korea's key industries such as semiconductors and automobiles.

Cho Suhong commented, "For the KOSPI to settle above 3,000 and maintain its upward trend, factors such as increased exports, tariff reductions, higher corporate earnings, and expanded advanced industrial technology are needed." He predicted that a short-term correction is inevitable in the second half of this year, citing a series of major events such as the end of the U.S. mutual tariff suspension in July, announcements of item-specific tariff investigations, and U.S. budget negotiations.

Various signs of overheating in the market also warrant caution. Kim Suhyun, a researcher at Hanwha Investment & Securities, pointed out, "Normally, volatility decreases when stock prices rise, but since mid-May, the VKOSPI (volatility index) has been rising alongside the KOSPI, which is unusual." She added, "Turnover rates, margin trading, and the share of individual trading are all at their highest levels since 2020-21. Every indicator is signaling overheating."

She continued, "As seen in 2021 (Kakao) and 2023 (EcoPro), in liquidity-driven markets, leading sector stocks rise together, but eventually, buying concentrates on one or two stocks, marking the end of the rally." She advised caution regarding investments in leading stocks in shipbuilding, defense, and nuclear power?such as HD Hyundai Energy Solution, Korea Aerospace Industries, and Doosan Enerbility?where margin trading is concentrated.

What Will Lead the Market in the Second Half?

How should investors respond? Experts emphasize that the impact of geopolitical shocks on the stock market is usually temporary. They suggest that sharp declines caused by global variables should be seen as buying opportunities. Park Heechan, head of research at Mirae Asset Securities, said, "If you select good stocks and invest with conviction, macro volatility can be overcome." He recommended paying close attention to shipbuilding, defense, beauty, and media content companies, which have recently shown notable improvements in earnings.

There are also views that, even if the market corrects in the short term and then rebounds, the leading sectors will maintain their dominance. Lee Euntaek, a researcher at KB Securities, said, "Policies to improve corporate governance will raise expectations for a revaluation of the Korean stock market, and if the won continues to strengthen, financial stocks?which have already surged?could gain further upward momentum." He selected Korea Financial Holdings and Samsung Securities as his top picks.

Kim Yonggu, a researcher at Yuanta Securities, stated, "The leadership of the heavy industry value chain?including shipbuilding, machinery, and defense?which dominated the market in the first half, as well as bio, software, and media·entertainment, is highly likely to continue in the second half." He added, "Just as NAVER and Kakao, representing AI·software platforms, joined the ranks of leading stocks following the appointment of Ha Jungwoo as AI chief, representative stocks in renewable energy, nuclear power, robotics, and bio are also expected to join the ranks of policy beneficiaries."

Additional capital inflows are also anticipated. Cho Suhong noted, "Korea's weight in the MSCI Emerging Markets Index is at a record low of around 9%." He explained, "If it returns to the long-term average of 13.6%, about 15.5 trillion won in additional foreign capital could flow in." He added that foreign investors, who are currently watching developments such as amendments to the Commercial Act and the introduction of separate taxation on dividends, are likely to enter the market gradually. Since passive capital inflows into Korean stocks have yet to fully materialize, further improvement in demand and supply, especially for large-cap stocks, is also expected.