"KOSPI Has Ample 20%?30% Upside, Semiconductors Will Lead the Rally"

Semiconductors to Benefit from AI Advancements Through Next Year
ETF Market Poised for Continued Growth Over the Next 10 to 20 Years
An Era When Korean ETFs Are Exported to the U.S. Is Coming

"I expect the Korean stock market to perform well this year, and I believe there is ample upside of about 20% to 30% from the current level."

In a recent interview with The Asia Business Daily, Nam Yongsoo, Head of ETF Management at Korea Investment Management, gave this outlook on the domestic stock market for this year.

Head Nam explained, "Korean companies are at the core of the massive trend of artificial intelligence (AI) development, and the government's value-up policy is continuing, so the upward momentum of the Korean stock market is likely to persist," adding, "However, the risk factors could be the issue of interest rate cuts and the bubble debate triggered by increased capital expenditures by big tech (large information technology companies)."

He predicted that semiconductors will continue to drive the market's upward trend. Head Nam said, "Recently, agent-type AIs have been emerging one after another. Their common feature is that they have moved beyond simple chat-level functions to autonomously creating multiple agents, directly controlling computers, and thereby strengthening the reasoning domain," and added, "With such technological progress, big tech companies are aggressively increasing their capital expenditures, and these investments will ultimately translate into revenue for semiconductor companies." He continued, "Because semiconductors are at the core of big tech capital expenditures, I believe the semiconductor sector will inevitably perform well this year and remain strong into next year as well."

He also expects that the leading sectors driving the domestic stock market, alongside semiconductors, will not change significantly. Head Nam said, "Semiconductors will pull the market, while shipbuilding and the defense industry will push from behind," and added, "The leading stocks that have driven the market so far will continue to hold their positions."

With the domestic exchange-traded fund (ETF) market having grown by 73% last year compared with the previous year, showing steep expansion, he forecast that this growth trend will continue for the next 10 to 20 years. Head Nam said, "The retirement pension market is expanding every year, and the shift from defined benefit (DB) plans to defined contribution (DC) plans is accelerating. In addition, within DC plans, the share of risky assets is steadily increasing, and most of those risky assets are being allocated to ETFs," and pointed out, "Given this, the ETF market is structurally bound to grow continuously through 2040." He added, "Beyond the pension market, if you look at Korean household assets, they amount to around 1,500 trillion won, and on a net asset basis, the deposit market is still large. Taking this into account, the growth potential of the ETF market is likely to continue for about 10 to 20 years."

As the government is currently pushing deregulation measures such as the introduction of single-stock leveraged ETFs, this is expected to have a positive impact on revitalizing the ETF market. Head Nam said, "In terms of product diversity, deregulation is unconditionally positive," and explained, "The Korean market is characterized by having an extremely large number of products. Because domestic investors are sensitive to market changes and study a lot, the environment naturally leads to greater product diversity." He predicted that the wide range of products in the domestic ETF market will itself become a source of competitiveness. Head Nam said, "The diverse range of products in the domestic market could become a competitive edge down the road," adding, "Up to now, the key has been who can bring in products listed in the United States more quickly, but I see a very high possibility that this will reverse. Products could be launched first in Korea and then exported in reverse to the United States. For that to happen, many regulations will need to be eased."

Regarding this year's ETF market trends, Head Nam projected that many Korea-focused ETFs will appear in line with the rise in the domestic stock market. He said, "More than 1,000 products were launched last year, and this year as well, many products will be launched, mainly thematic ETFs. In particular, as the Korean stock market is gaining momentum, Korea-focused ETFs will continue to emerge one after another." He added, "The investment trend will continue to be a style in which investors center their portfolios on major U.S. and Korean benchmark indices, and then add thematic ETFs depending on market conditions."