[Market Analysis] KOSPI Rally to Continue Through First Half of Next Year... Strong Support from Semiconductors and Foreign Investors

Diagnosis of the Stock Market by Heads of Research at Eight Major Securities Firms
Bull Market Expected to Continue Through First Half of Next Year
Expectations for Additional Inflows of Foreign Capital Remain Valid
Positive Outlook for the

The KOSPI continues to set new all-time highs, moving toward the 3,500 mark. With attention focused on how long this unprecedented bull market will last, heads of research centers at securities firms predict that the upward trend will continue through the first half of next year. The main reasons cited are the rally in semiconductors and strong foreign buying.

According to the Korea Exchange on September 22, the KOSPI rose 1.46% over the past week. So far this month, it has climbed 8.14%. On September 10, the KOSPI broke through the 3,300 mark for the first time in four years and two months, setting a new all-time high, and has since continued its upward momentum, settling above 3,400 last week.

There are projections that this record-breaking rally will persist through the first half of next year. Yoon Seokmo, Head of Research at Samsung Securities, stated, "Due to the base effect in domestic demand and the renewed strength in semiconductor prices, the trend of setting new all-time highs is expected to continue through the first half of next year." Choi Kwanghyuk, Head of Research at LS Securities, also forecast, "With continued policies to stimulate the stock market and the ongoing expansion of global liquidity, the bullish trend is likely to persist through the first half of next year."

However, it is expected that the upward momentum will somewhat slow down next year compared to this year. Yoon Changyong, Head of Research at Shinhan Investment & Securities, commented, "While net profit will rise due to increased operating profit at semiconductor companies, the earnings momentum is likely to peak in the second half of this year." He added, "In 2026, rather than explosive improvement, the market will enter a phase of stable growth, and the performance gap between sectors will widen further. Therefore, unless there is diversification beyond improved semiconductor results through the second half of next year, the upward momentum will be limited."

The ongoing rise in the KOSPI is attributed to the strength of semiconductors and robust foreign buying. Foreign investors have net purchased over 6.6 trillion won in the main stock market this month, acting as a key driver for the index's rise. During the same period, institutions net purchased over 1.8 trillion won, while individuals sold more than 9 trillion won.

Jo Suhong, Head of Research at NH Investment & Securities, analyzed, "The liquidity effect from the US Federal Reserve's accommodative monetary policy and the favorable outlook for the semiconductor industry are sustaining foreign investor buying. Additionally, expectations for policy momentum such as the Korean government's separate taxation on dividend income are also attracting foreign capital. If the third amendment to the Commercial Act passes, additional foreign funds could flow in, providing further long-term momentum for the market." Yoo Jongwoo, Head of Research at Korea Investment & Securities, explained, "Given the cumulative or historical foreign ownership ratios since the beginning of the year, expectations for additional foreign inflows remain valid," adding, "Signs of overheating have not yet been observed."

In particular, foreign buying is concentrated in semiconductors, and considering that semiconductor prices are expected to remain strong for the time being, this trend is likely to continue. Yoon Seokmo noted, "Domestic funds flow into the stock market for various reasons, but foreign, or global, funds almost always respond to earnings momentum. The earnings momentum for IT companies, especially in the US stock market, has been solid, and as these issues are linked to expectations for increased investment in IT companies, the earnings momentum for Korean IT firms is also improving. This buying trend is expected to continue through the first half of next year as long as semiconductor prices remain strong." Lee Jonghyeong, Head of Research at Kiwoom Securities, pointed out, "Approximately 86% of total foreign net buying is concentrated in the semiconductor sector. With favorable conditions in the semiconductor industry persisting, short-term inflows into semiconductors could also continue."

Positive factors that could influence the stock market going forward include the resumption of the interest rate cut cycle and market-friendly policy stances, while negative factors cited include uncertainty over Korea-US tariff negotiations, concerns about a US economic slowdown, worries over corporate earnings, and pressure for profit-taking. In particular, attention should be paid to the 'three lows' (low dollar, low oil prices, low interest rates) environment. Kim Dongwon, Head of Research at KB Securities, explained, "The 'three lows' refer to a low dollar, low oil prices, and low interest rates, and this combination is extremely rare. It is being seen for the first time in 40 years since 1986-1988. Such an environment is especially positive for stock markets in non-dollar countries, countries highly dependent on commodity imports, and countries with low national debt. The Korean stock market fits these criteria."

With the long Chuseok holiday approaching, it is advisable to be cautious about increased short-term volatility. Yoo Jongwoo noted, "With about 10 trading days left before the holiday, investors should be mindful of the possibility of a temporary slowdown in the upward trend. During the holiday, it is difficult to respond to external issues, and market volatility tends to increase immediately after the holiday. In particular, volatility tends to rise more after Chuseok than after the Lunar New Year, as there are usually more issues during Chuseok. Although this trend has eased since 2011, there was a case in 2023 where the KOSPI fell by more than 2% in a single day immediately after the Chuseok holiday due to uncertainty over the US budget. However, a major correction is unlikely."

There is an opinion that attention should be paid to stocks among previous leading sectors where overheating has eased or sufficient time corrections have occurred. Ko Taebong, Head of Research at iM Securities, said, "The reason individual investors often fail to profit in a bull market is that they exit too early, enter too late, or increase their investment after gaining confidence from small profits as the market rises, only to fail. Leading sectors such as semiconductors, artificial intelligence (AI), and robotics are expected to maintain their favorable industry trends, so I recommend quickly entering stocks that have not yet risen much, or among previous leaders, selecting those where overheating has eased or sufficient time corrections have taken place."