[Market ING] KOSPI Surpasses 3,700, Faces Rising Valuation Pressure

Weekly KOSPI Projected Range: 3,550 to 3,850

The KOSPI continues to make history every week. Last week, it surpassed the 3,700 mark. As the KOSPI's relentless upward momentum continues, concerns are growing over valuation pressure, leading to projections that further upside potential may be limited.

Yonhap News Agency

Last week, the KOSPI rose by 3.83%, while the KOSDAQ increased by 0.01%. After breaking through the 3,600 mark the previous week, the KOSPI continued its record-breaking rally by surpassing the 3,700 level last week. Lim Jeongeun, a researcher at KB Securities, analyzed, "Despite renewed concerns about US-China tensions last week, expectations for a Korea-US trade agreement and the resurgence of leading stocks helped the KOSPI set new record highs day after day, resulting in a 3.83% weekly gain."

While semiconductors had previously been the sole driver of the stock market’s rise, last week saw a reduction in this concentration, with rotational buying emerging. Lee Kyungmin, a researcher at Daishin Securities, explained, "Following Samsung Electronics' earnings surprise, the concentration in semiconductors eased, and rotational buying into previously neglected stocks helped the KOSPI surpass the 3,700 mark. Non-ferrous metals, lumber, secondary batteries, chemicals, utilities, automobiles, and steel all surged."

Third-quarter earnings are supporting the stock market's upward trend. Yoo Myunggan, a researcher at Mirae Asset Securities, noted, "Although volatility in the domestic stock market increased last week due to US-China tariff issues, expectations for improved earnings continued, sustaining the upward trend. Despite external uncertainties, strong third-quarter results are expected to limit any index decline. It is advantageous to focus on sectors with positive earnings momentum."

However, the elevated valuations resulting from the sustained rally are a cause for concern. Researcher Lee stated, "The KOSPI's current forward price-to-book ratio (PBR) stands at 1.15 times, and with a forward return on equity (ROE) of 10.6%, it is situated in an overvalued range of 13.22%, increasing the valuation burden. This represents the largest valuation gap since 2010, and with sector and stock-specific rotational buying, the KOSPI's upside potential is likely to be limited."

While a short-term correction may occur, many expect the upward trend to persist due to the structurally strong market. Lee Sangjun, a researcher at NH Investment & Securities, said, "Given that the KOSPI broke through the 3,700 mark in a short period, there may be some profit-taking pressure. Although this pressure has eased somewhat following conciliatory messages from US President Donald Trump, uncertainty remains regarding the US-China trade dispute until the Asia-Pacific Economic Cooperation (APEC) summit. However, ongoing shareholder return initiatives and signals from Federal Reserve Chair Jerome Powell suggesting the end of quantitative tightening (QT), as well as the Fed's dovish monetary policy stance, indicate that the current market is structurally strong. Even if there is a short-term correction, the upward trend is expected to continue." NH Investment & Securities projected the KOSPI's expected band for this week to be between 3,550 and 3,850.

This week’s major events include the release of China’s September retail sales, industrial production, fixed asset investment, and third-quarter gross domestic product (GDP) on October 20. On October 21, Korea’s export performance for October (1st-20th) will be announced. On October 23, the Bank of Korea’s Monetary Policy Board meeting is scheduled. On October 24, the United States will release its September Consumer Price Index (CPI) and the October S&P Global Manufacturing and Services Purchasing Managers’ Indexes (PMI).

Major earnings releases from both US and domestic companies will also continue. On October 21, General Motors, Coca-Cola, and Netflix will announce their results; on October 22, Tesla, AT&T, SAP, and IBM will release theirs; and on November 2, Intel and Ford will publish their earnings. Among domestic companies, Hyundai Engineering & Construction will announce its third-quarter results on October 22, and Samsung Heavy Industries will do so on October 23.

Kang Jinhyuk, a researcher at Shinhan Investment & Securities, stated, "Starting this week, big tech companies will begin announcing their earnings. It will be important to confirm the sustainability of the AI tech cycle rally through guidance on artificial intelligence (AI) capital expenditures (CAPEX) and related investments."