Experts say that the “KOSPI 3,000 era” will arrive in 2018 as the upturn in the stock market is forecast to continue again this year despite some risk factors such as an asset shrinkage caused by the rise in U.S. interest rates and a slowdown in the growth of the semiconductor industry.
South Korea’s major investment firms predict that KOSPI index will hit the 2,800 to 3,100 level this year. Shinhan Investment and Kyobo Securities said that the KOSPI will hit a record high for the year at the 2,800 level, presenting the most conservative estimates, while Samsung, Daishin and KB Securities said that it would break through 3,000 points.
The upward trend in the KOSPI is mainly driven by South Korean companies’ improvement in performance. The global economy this year will continue to have the last year’s recovery, leading to the improvement in domestic firms’ performance. NH Investment & Securities said, “The rate of net profit increases of 220 South Korean companies for 2018 is expected to stand at 11.4 percent, which is lower than 56.1 percent of last year, but its performance itself will remain at the high level with net profits of 161.9 trillion won (US$151.83 billion).” The fact that the “Korea discount,” which hinders foreigners from investing in the domestic stock market, including lower dividend rates, will moderate is another cause of the rise of the KOSPI. Korea Investment & Securities said, “As the Stewardship Code has come into effect from this year, the market will make a stronger demand for shareholder returns, including dividend and share repurchase.” In short, the whole value of the domestic stock market will rise when the governance structure of conglomerates will improve and the dividend friendly policy is implemented as part of the Moon Jae-in government’s plans to reform chaebol.
However, there are more risk factors that pull down the KOSPI index later this year due to uncertainties of the global monetary policy. The U.S. is expected to increase its benchmark interest rate three to four times this year. In this case, assets in the market will shrink as the interest rate rises and the supply and demand in the stock market can become worse. In particular, foreigners tend to withdraw their investments from emerging nations, like South Korea, owing to the lowered preference for risk assets. With the increase of interest rates for savings and installment savings, money in the stock market can move to savings products in large numbers. In addition, the fact that the rapid growth of Chinese semiconductor companies can dwarf the domestic IT industry, which has shored up the stock market, is another negative factor for the index.
Stock market experts believe that the IT industry will maintain the leadership this year and the upturn will expand to stocks for Chinese consumption sectors, such as distribution and chemical, and policy benefiting shares including bio and new renewable energy.