[Good Morning Stock Market] "Korean Stock Market Expected to Rebound Mid-Term After Bottom Formation"

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] There is a forecast that the Korean stock market will form a short-term bottom and then show a medium-term rebound. This is due to the accumulation of suppressed demand, continued policy-driven excess stimulus, and persistent excessive undervaluation.

◆Hyunki Kang, Researcher at DB Financial Investment=It is judged that the Korean stock market will go through a process of forming a short-term bottom and then exhibit a medium-term rebound. There are three driving forces behind the medium-term rebound of the Korean stock market. First, ‘suppressed demand’ is accumulating. The restriction of economic activity paradoxically accumulates suppressed demand. Suppressed demand is highly expected in durable goods that require face-to-face contact and physical verification, and in trade sectors that require cross-border movement for contracts. Moreover, if major countries choose cooperation to overcome the crisis, trade frictions will decrease, and the autonomous rebound of suppressed demand will be further amplified.

Second, the ‘policy-driven excess stimulus’ state will continue. Even after the COVID-19 pandemic subsides, the already announced stimulus measures will remain and continue to have an impact. This will ultimately lead to excess stimulus. In the U.S., part of the liquidity is flowing into the housing market, creating a structure that can strengthen the stimulus effect. China has already presented stimulus measures earlier, so their effects are expected to appear from the second quarter.

Third, the market remains in a state of ‘excessive undervaluation.’ Looking at valuation metrics, the current Korean stock market is at a low level compared to any crisis. Except for the IMF crisis, the Korean stock market has stopped falling at a trailing price-to-book ratio (PBR) of 0.8x in all periods. However, currently it is even below that. The dividend yield of the Korean stock market is currently 2.87%, reaching levels seen during the financial crisis. Now, dividends from the KOSPI are better than the interest on most bonds.

◆Sangyoung Seo, Researcher at Kiwoom Securities=The Korean stock market is expected to rise following U.S. President Donald Trump’s declaration of a state of emergency due to COVID-19 on the 13th, along with the announcement of various stimulus policies. Furthermore, expectations for international oil price stabilization through strategic petroleum reserve purchases are also positive. Especially, the policy announcements at the press conference on the 12th, which the market had anticipated, have significantly improved investor sentiment. Additionally, the possibility of interest rate cuts and large-scale quantitative easing at the Federal Open Market Committee (FOMC) meeting on the 18th is also positive. Meanwhile, stimulus policy announcements by global governments and central banks, including China and Japan, are factors that foresee a strong rebound in the Korean stock market.

However, the rapid increase in COVID-19 confirmed cases in the U.S. and the announcement of expanded testing starting this week make such a surge inevitable, which is a concern. Especially as many parts of Europe are implementing lockdowns, the surge in U.S. cases could increase uncertainty. Considering this, the Korean stock market is expected to rebound in the short term supported by global stimulus policies, but volatility is expected to increase after the rise. Taking this into account, the KOSPI is expected to fluctuate between 1800 and 1950 points, and the KOSDAQ index between 530 and 560 points.

This content was produced with the assistance of AI translation services.