What Are the Conditions for KOSPI to Stabilize Above 3000?

[Asia Economy Reporter Song Hwajeong] The KOSPI index has surpassed the 3000 mark, driven by strong liquidity from individuals and others, but corporate earnings recovery will likely need to support the stabilization above 3000.

According to IBK Investment & Securities on the 9th, the biggest driver behind the KOSPI crossing the 3000 level was individual funds. In the first four trading days of the year, individuals net purchased 2.3 trillion won. Customer deposits, which are funds not yet flowed into the stock market, also sharply increased, approaching 70 trillion won.

Liquidity was also strong when the KOSPI broke through the 1000 and 2000 levels in 2000 and 2007. Around the IT bubble in 2000, the ratio of KOSPI trading volume to Gross Domestic Product (GDP) was at a level similar to the current one. The proportion of individual investors in the trading volume was even higher than now. With the emergence of new technology such as the internet, a large amount of individual funds flowed in based on vague growth expectations rather than rational profit improvement forecasts. Soeun Ahn, a researcher at IBK Investment & Securities, said, "Although it ultimately ended with the bubble burst, the individual liquidity at that time led to an attempt to break through the psychological resistance level of KOSPI 1000."

During the fund craze in 2007, individual influence was also significant. The ratio of trading volume to GDP rose to a meaningful level, though not as high as during the IT bubble. While the proportion of individual trading volume was not high, the increased institutional share due to the fund craze can be seen as reflecting the influence of individual liquidity. This large-scale individual liquidity helped the KOSPI attempt to break through the new psychological resistance level of 2000.

However, underlying the failure to break through the psychological resistance levels in 2000 and 2007 was profit levels not significantly different from before. Researcher Ahn said, "It is important to remember that although abundant liquidity conditions in the past provided the background for stock indices to attempt new levels, stock indices ultimately moved based on earnings fundamentals," adding, "Regardless of liquidity conditions, the KOSPI broke through and stabilized at new levels during periods when earnings significantly increased."

Therefore, whether the KOSPI stabilizes above 3000 will also depend on corporate earnings levels this year. Although profit differentiation by industry has deepened since the COVID-19 pandemic, overall operating profits for the KOSPI this year are expected to fall short of the record highs seen in 2017-2018. Researcher Ahn explained, "Even though the market consensus is formed this way, the KOSPI is significantly exceeding the 2600 peak levels of 2017-2018, so concerns about overheating are inevitably accumulating," adding, "If expectations do not improve from the current level, 3000 could remain a psychological resistance level."

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