KOSPI Surpasses 2600... "More Room for Growth"

Expectations for Economic Recovery... 'Eldest Brother' Samsung Electronics Hits New High
Foreign Capital Inflow Capacity Remains for Now... Further Rise Expected
Short-term Correction Concerns Arise... Possible Adjustments in December and March Next Year

On the 23rd, employees are working in the dealing room at the Myeongdong Hana Bank headquarters in Jung-gu, Seoul. [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The KOSPI surpassed the 2600 mark for the first time in about three years. This is attributed to the continuous upward revision of corporate earnings forecasts, coupled with expectations of a global economic recovery. With the Korean won strengthening, there is still room for foreign capital inflow, leading to forecasts of further gains.

As of 11:39 a.m. on the 23rd, the KOSPI stood at 2600.11, up 1.83% from the previous trading day. This marks the first time since January 29, 2018, when it reached an intraday high of 2607.10, that the index has crossed the 2600 level. Analysts attribute this to the resolution of uncertainties surrounding the U.S. presidential election and the development news of COVID-19 vaccines announced by Pfizer, Moderna, and others, which boosted expectations for economic recovery.

In particular, the rise of the top two domestic market cap stocks, Samsung Electronics and SK Hynix, played a significant role. Samsung Electronics hit a new high at 67,200 KRW at 9:50 a.m., up 3.86% from the previous day. SK Hynix also surged about 4.3%, reaching 101,000 KRW.

With foreign capital inflows expected to continue for the time being, there are also forecasts that the previous peak could be surpassed. From June 2017 to last month, foreigners had net sold about 36 trillion KRW. However, since the beginning of this month until the 20th, they have net purchased 5.017 trillion KRW. Lee Sang-min, a researcher at Kakao Pay Securities, explained, "Because a sharp reduction in supply and demand inevitably leads to a rebound, just like when automobile, chemical, and refining stocks rose, it is advisable to increase weighting in domestic IT and cyclical stocks amid the atmosphere of earnings rebound." He added, "Foreigners are attracted to Korea, which has relatively fared well against COVID-19 compared to the U.S. and Europe."

The won-dollar exchange rate, which dropped to the 1100 KRW level, also influenced foreign demand. Despite the dollar's weakness drawing funds to emerging markets, capital flowed into Korea due to its solid fundamentals. When the won shows a strengthening trend, foreign ownership of the KOSPI typically increases. Foreign ownership has trended upward since 2010, but the current ownership rate is 36%, below the trend line of 37.4%. The reduction in weighting during the global COVID-19 pandemic is a factor, but increased individual participation in the stock market also contributed. Choi Yoo-jun, a researcher at Shinhan Financial Investment, said, "Foreigners buying at the KOSPI's record high level is a bet on economic normalization next year." He added, "Assuming a recovery to the trend line level of ownership, foreigners could have additional buying power of about 25 trillion KRW based on current market capitalization."

There are also warnings to keep in mind the possibility of a correction due to a resurgence of COVID-19 in the future. KB Securities expects that short-term shocks will not be significant as the Weekly Economic Index (WEI) from the New York Federal Reserve, which indicates the direction of the real economy, continues to recover. Ha In-hwan, a researcher at KB Securities, said, "In March, the direction of the real economy turned down, causing a sharp stock market drop, but in June and September, the real economy was recovering, so the stock market corrections were limited." He added, "Since the WEI is still recovering, if the recovery trend of the real economy is not broken, the correction will be a 'small shock' type of temporary adjustment."

However, he warned to be cautious about a correction expected around March next year. Ha said, "The current recovery speed is very similar to that of 2009, and based on this, another shock could occur around March next year." He explained, "After the real economy has somewhat recovered, when expectations for further recovery are low, stock price corrections may appear."

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