Return of Foreigners and Soaring Large Caps: "KOSPI Expected to Reach 2800 Next Year"

Impact of Strong Domestic COVID Control
Foreigners Net Buy 4.9662 Trillion KRW This Month
KOSPI Rises Every Day in November Except One
Large-Cap Stocks' Uptrend Also Boosts Market Strength
Industry Outlook for Next Year Remains Optimistic

[Asia Economy Reporter Song Hwajeong] The decisive factor behind the KOSPI reaching near its all-time high was the recent return of foreign investors to the Korean stock market. As foreigners concentrated their purchases on large-cap stocks including Samsung Electronics, the KOSPI, which had been sustained by individual investors, surpassed 2550 in a short period. The market is optimistic that the KOSPI could rise to the 2800 level next year.

As of 9:40 a.m. on the 17th, the KOSPI recorded 2551.81, up 0.35% (8.78 points) from the previous day. The KOSPI surpassed the 2500 mark for the first time in 2 years and 10 months the previous day and then exceeded the 2550 level. The all-time high for the KOSPI is 2607.10 (intraday basis) and 2598.19 (closing basis), recorded on February 2, 2018. The distance to the all-time high has narrowed to around 50 points.

Foreign investors are leading the KOSPI's record high breakthrough. Since the COVID-19 pandemic, foreigners had maintained a selling trend in the Korean stock market, but this month alone they have purchased nearly 5 trillion won, driving the KOSPI upward. Foreigners have net bought 4.9662 trillion won in the Korean stock market this month up to the previous day. Due to the aggressive buying by foreigners, the KOSPI has been in the red every day except one this month. The KOSPI rose 12.17% this month, marking the second time this year with a double-digit monthly fluctuation rate following April.

The inflow of foreign investors into the Korean stock market is analyzed to be due to the weak dollar and relatively favorable COVID-19 conditions. Kim Kwanghyun, a researcher at Yuanta Securities, said, "Foreigners, who caused a supply-demand gap by net selling more than 27 trillion won since the beginning of the year, have shown differentiated behavior by net buying nearly 5 trillion won this month," adding, "Relatively good control of COVID-19 and the attractiveness of the stock market due to the exchange rate decline are evaluated as the reasons for foreign net buying."

The rise of large-cap stocks including Samsung Electronics also contributed to the KOSPI's strength. Samsung Electronics has recently been hitting record highs day after day, continuing its rally. On this day, it rose to 67,000 won intraday, setting a new all-time high again. Samsung Electronics has risen 17.14% this month up to the previous day. The strength of Samsung Electronics is analyzed as a signal for the KOSPI's rise. Lee Kyungmin, a researcher at Daishin Securities, said, "Samsung Electronics' record high breakthrough signals a mid- to long-term upward trend for Samsung Electronics and the KOSPI," adding, "Samsung Electronics is highlighting various positive factors such as semiconductor industry recovery, expectations for Samsung Group's dividend expansion, and benefits from foreign investors' buying due to capital movement to emerging markets. Steady performance level-ups are expected until 2022, and a trend rise of the KOSPI centered on Samsung Electronics is anticipated." SK Hynix also rose 22.65% this month, approaching the 100,000 won mark, and Samsung Biologics, ranked third in market capitalization, rose 11.14%.

The market's sensitivity to positive news over negative news is also cited as a cause of the stock market's strength. Researcher Kim said, "There were positive issues such as maintaining the 1 billion won threshold for capital gains tax on major shareholders, Joe Biden's election, and Pfizer's vaccine development, and the third-quarter corporate earnings and export data currently being announced were not bad," adding, "Above all, the current market's sensitivity to positive news rather than negative news seems to have created the rapid rise."

It is analyzed that the fundamental strength has become more solid compared to 2018 when the all-time high was recorded. Especially at that time, the IT sector was heavily concentrated, but now large-cap stocks excluding the IT sector are also firmly supporting the index. Lee Jaeseon, a researcher at Hana Financial Investment, said, "At the end of January 2018, when the all-time high was recorded, the KOSPI market capitalization surpassed 1600 trillion won, similar to now, but the level rise of the KOSPI was solely driven by large IT sectors," adding, "Currently, the index rise is evolving into a form not concentrated in specific sectors, so the KOSPI rise is structurally different from the past." From 2016 to January 2018, the market capitalization of Samsung Electronics and SK Hynix increased by 84%, while the KOSPI market capitalization excluding these companies increased by only 24%. Unlike in 2018, this time the market capitalization increase of the KOSPI excluding Samsung Electronics and SK Hynix progressed faster, and positive outlooks for growth companies such as secondary batteries and software, as well as traditional heavy industries like automobiles and chemicals, drove the stock market rise. The researcher said, "The operating profit share of automobiles and chemicals in the KOSPI is expected to expand to 13% next year, increasing alongside semiconductors and IT hardware."

The securities industry expects the KOSPI to reach the 2800 level next year. Oh Taedong, a researcher at NH Investment & Securities, said, "With expectations for domestic and international economic recovery at the beginning of the year, the KOSPI rose to 2600 points, then temporarily corrected to the 2300 level due to the end of the Biden administration's honeymoon period and rising bond yields from inflation around the first anniversary of COVID-19 spread," adding, "Afterwards, the economy will grow moderately, interest rates will stabilize, and a Goldilocks-like environment will be created, leading to a rise to the 2800 level." Oh added, "If the stock market does not enter a bear market, funds will continue to flow into the stock market due to the decline in expected returns in the real estate market."

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