Korea Investment & Securities Raises Upper End of KOSPI Forecast Band to 3,550 for Second Half

Korea Investment & Securities announced on July 10 that it is raising the upper end of its KOSPI forecast band for the second half of the year to 3,550, taking into account improved dividend payout ratios and share buybacks. The company assessed that, reflecting expectations for a policy rate cut in the fourth quarter and improved market supply-demand conditions, there is a high possibility that the index could rise further.

Kim Daejun, a researcher at Korea Investment & Securities, stated in a report on this day, "We are revising the KOSPI band for the second half of the year from the previous 2,600?3,150 to 2,900?3,550."

Taking into consideration the Lee Jaemyung administration's policy stance to revitalize the stock market, the method for estimating the index was also changed. The company shifted from a residual income model, which compares return on equity (ROE) with cost of equity (COE), to a relative valuation model that applies earnings per share (EPS) and price-to-earnings ratio (PER).

Kim evaluated, "Given the government's stock market activation policies and improved investor sentiment, it is more appropriate to estimate the index based on a fair PER multiple rather than the conservative previous model."

He explained, "The upper end of the KOSPI forecast applies a 12-month forward PER of 11.5 times. The 12-month forward MPS used is 309 points, which is 3% higher than the consensus of 300 points," and "the lower end of the KOSPI forecast reflects a PER of 10 times and an EPS figure adjusted downward by 3%."

He also stated, "While earnings estimates are moving sideways, if share buybacks proceed in the future, the resulting reduction in the number of shares is expected to increase EPS. Taking into account improved sentiment and the effects of government policies, it is highly likely that the index will reach the target level (PER 11.5 times)." He further added, "In particular, it should be noted that the index is more likely to rise in the fourth quarter, when a rate cut and improved supply-demand are expected, than in the third quarter, which is facing various negative factors."

Meanwhile, the KOSPI closed at 3,133.74 the previous day, setting a new record closing high on expectations of benefits from the new government's policies. This is also the highest level in three years and ten months since September 17, 2021 (3,140.51).