An analysis has emerged suggesting that the Morgan Stanley Capital International (MSCI) Korea Index is poised to experience a 20 percent increase in the coming year.
On Nov. 26, Bloomberg Intelligence (BI), a research institution under Bloomberg, projected a 58 percent increase in the total earnings per share (EPS) of companies included in the MSCI Korea Index over the next 12 months. The market consensus for the net profit growth rate of South Korean companies is approximately 65%, representing a relatively moderate predictive model. The MSCI Korea Index is a global stock index published by the U.S. investment bank Morgan Stanley Capital International, encompassing large and mid-cap stocks from South Korea.
The net profit growth rate for MSCI Emerging Markets is anticipated to average 18.7 percent next year. The analysis suggests that South Korea will experience the most significant increase among emerging markets. The profit growth is expected to be driven by the two major semiconductor companies in the country, Samsung Electronics and SK hynix. Samsung Electronics is projected to triple its net profit next year, while SK hynix, which faced losses this year, is expected to turn a profit in the coming year.
After hitting a low point, the semiconductor industry is expected to rebound, driven by the rise in demand for artificial intelligence (AI). If semiconductor prices rise to the levels seen in the fourth quarter of last year, it is forecasted that the MSCI Korea Index will increase by 20 percent from its current level. However, it is worth noting that the positive earnings outlook has already been partially factored into the current stock prices.
The prospect of the U.S. Federal Reserve (Fed) halting its interest rate hike also brightens the outlook for the South Korean stock market. If the Fed refrains from further rate increases, leading to a weakened U.S. dollar, the Korean won is likely to strengthen. This, in turn, boosts favorability towards the South Korean stock market, which is sensitive to movements in the U.S. dollar. Foreign investors have been net buyers in the South Korean stock market, pouring in 6.8 trillion won (US$5.21 billion) this year, contributing to the market’s recovery from a three-month decline starting in August. Notably, foreign funds saw a net inflow last month after the ban on short selling by South Korean financial authorities.
While foreign investors have generally been net sellers in other sectors, the electronics industry, led by Samsung Electronics attracting 13.9 trillion won (US$10.64 billion) in foreign capital, has seen the majority of foreign buying. On the contrary, the metal and chemical sectors have experienced the highest proportion of foreign capital outflows this year. In the case of POSCO, it witnessed the largest outflow of foreign funds, mainly attributed to dim prospects in raw material demand.