[Good Morning Stock Market] KOSPI Breaks 2300... KOSDAQ Anticipates Bio Rally

KOSPI Surpasses 2300 Level for the First Time in 1 Year and 10 Months
KOSDAQ Bio-Related PER Lower Than in 2015 and 2017
Consider Paying Attention to Domestic IT Companies Once Inventory Cycle Bottom Confirmed

[Asia Economy Reporter Minji Lee] The KOSPI, which had fallen to the 1430 level this year due to the impact of the novel coronavirus infection (COVID-19), has surpassed the 2300 level for the first time in 1 year and 10 months, showing an unstoppable upward trend. On the 5th (local time), the U.S. stock market also closed higher across all three major indices, buoyed by expectations of an agreement on additional stimulus measures and strong earnings from some companies such as Walt Disney (8.8%).

[Image source=Yonhap News]

◆ Sangyoung Seo, Kiwoom Securities Researcher = The domestic stock market saw the KOSPI exceed 2300 points for the first time since early October 2018, supported by large-scale net buying by individual investors. This is presumed to be due to the government's New Deal fund formation and the consequent surge in the secondary battery sector. In this context, the U.S. stock market's upward trend, despite employment uncertainties, driven by ongoing negotiations on additional stimulus packages and positive corporate news, is expected to improve investor sentiment. The weak dollar trend alongside rising international oil prices is also positive.

However, the fact that U.S. employment indicators have contracted to shock levels is likely to weigh on future indices. Market concerns have grown following a recent Cornell University survey revealing that 31% of workers rehired during the economic reopening were laid off again, and 26% were warned of layoffs.

The additional stimulus policy is expected to be agreed upon with the Democrats reducing some funds and the White House increasing additional unemployment benefits to $400. Currently, the Democrats and Republicans have entered further negotiations, with results expected as early as this morning. The removal of uncertainty regarding the additional stimulus policy is likely to rapidly improve investor sentiment.

◆ Hainhwan Ha, Meritz Securities Researcher = The bio rally continues in the KOSDAQ market as well. The KOSDAQ experiences a bio rally every 2 years and 5 months. The periods and magnitudes of the rallies in 2015 and 2017 have already been realized in the current market.

Although some express concerns about the current price levels, corporate profits are supporting the market now. While stock prices are rising, the PER of the KOSDAQ healthcare sector is not increasing. In fact, it remains only at the level before the bubbles began in 2015 and 2017. This is why there is a high likelihood of further gains in the KOSDAQ, especially in the bio sector.

◆ Byunghyun Jo, Yuanta Securities Researcher = Looking back at the July stock market, the market sentiment is changing. While it is true that leading stocks with an untact (contactless) concept centered on Naver and Kakao are performing well, there is also a recovery in long-neglected cyclical and value stocks. Machinery (16.2%), transportation equipment (14.6%), and steel & metals (13.1%) were among the lower-ranked sectors in the exchange during the first half but have recently shown an upward trend.

It is also noteworthy that the pace of foreign selling has slowed. Although selling pressure has appeared since August, changes in foreign demand are judged to have occurred due to the decline in the dollar index and confirmation of the bottom in domestic stock market earnings forecasts. However, it is premature to say that foreigners have fully returned to the domestic stock market. Despite the dollar's weakening trend continuing for over two months since mid-May, global equity fund flows have not increased significantly. Also, net buying in the domestic stock market in July was concentrated on Samsung Electronics, and this month net buying has centered on secondary batteries.

Unlike Samsung Electronics, which includes diversified businesses, SK Hynix is a stock that moves with the economic cycle. For foreign net buying to concentrate, it is necessary to confirm that the current inventory cycle is at its bottom and that there is confidence in additional U.S. government economic stimulus. If these signals are confirmed, increasing exposure to the domestic IT sector overall could be an attractive investment strategy.

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