KOSPI Hits Record High Profits "Driving Bull Market"... Fear Index Eases and Foreign Investor Demand Improves (Comprehensive)

Expectations for Interest Rate Shock Mitigation and Rapid Global Economic Recovery
KOSPI Companies' Profits Reach Record High...Improved Supply and Demand Also

[Image source=Yonhap News]

[Asia Economy Reporters Junho Hwang, Seonae Lee] There is a flood of forecasts that the KOSPI, equipped with strong fundamentals, will enter a bullish phase in the second quarter. As momentum such as economic and corporate profit growth, which outweighs the risks of rising inflation and interest rates in the global market, flows in, expectations are growing that the upward momentum of the KOSPI in the second quarter will be stronger than anticipated.

◆Easing Interest Rate Shock and Global Economic Recovery= Securities firms expect the shockwave from the rapid rise in interest rates to gradually weaken. Looking at the long-term policy interest rate outlook of the U.S. Federal Reserve (Fed), it is analyzed that the short-term interest rate is nearing its upper limit. Kim Yong-gu, a researcher at Samsung Securities, explained on the 29th, "The long-term policy interest rate is about 2.5% per annum as of March, and the upper limit of the 30-year maturity moves along with the policy rate," adding, "Considering that the average difference between the 30-year and 10-year government bonds is 0.63 percentage points, the short-term upper limit of the 10-year maturity interest rate is 1.86% per annum."

In this context, the global economic recovery is accelerating. Lee Kyung-min, a researcher at Daishin Securities, forecasted, "The GDP growth rate in the second quarter is expected to reach 11.5% in the U.S., 13.1% in the Eurozone, 9.01% in the G10, and 12.01% in Asia. In this case, rising inflation and interest rates will form a virtuous cycle with economic recovery and growth, adding upward momentum to global stock markets," and predicted, "Sectors leading global economic recovery and corporate profit growth, as well as cyclical and financial stocks sensitive to inflation expectations, will rise together."

Accordingly, a recovery in trade is also expected. In the process of simultaneously solving the challenges of demand recovery, consumption, and inventory normalization, major advanced countries including the U.S. will compensate for the insufficient supply through imports (exports from the perspective of the counterpart countries), which is a positive factor for the Korean economy, industry, and financial markets that have high external dependence and a high export ratio. Moreover, there is a very high correlation between Korea's export momentum and the sales growth rate of KOSPI companies. In fact, Korea's earnings per share (EPS) growth rate in 2021 reached 54%.

◆KOSPI Profits Reach All-Time High= According to FnGuide, the operating profit and net profit forecasts for KOSPI companies this year have exceeded 185 trillion won and 130 trillion won, respectively, as of now. Corporate profits on the KOSPI have already surpassed historical peaks and are continuously setting new all-time highs. This is due to the visible economic recovery and business improvement combined with inflation expectations. The speed of upward revisions in operating profit forecasts is accelerating. This indicates that both the performance level and performance momentum have entered a new phase.

However, some fluctuations are inevitable in the second quarter as well. Lee Eun-taek, a researcher at KB Securities, said, "In the history of the Korean stock market, strong long-term bull markets appeared twice, from 1986 to 1989 and from 2003 to 2007, and in both cases, there was a decline of more than 15% over four months before rising," adding, "It is expected that the market will continue to adjust until mid-second quarter and then a strong bull market may be reproduced based on the effects of stimulus measures from each country."

◆Fear Index Calms Down... Foreign Investor Inflows Also Improve= The KOSPI 200 Volatility Index (V-KOSPI), known as the fear index, has also fallen to levels seen at the end of last year. On the 26th, the V-KOSPI recorded 20.36, down 6.13% from the previous day. This is the lowest level in 63 trading days since it recorded 19.57 on December 18 last year, based on daily closing prices. Since the beginning of this year, as the KOSPI surged to 3,000 and then 3,200, the V-KOSPI also rose to an intraday high of 37.5. However, as the KOSPI has been trapped in a box range fluctuating between 2,900 and 3,000, the volatility index has gradually declined.

Foreign investor inflows are also expected to improve. Kim Dami, a researcher at Shinhan Investment Corp., explained, "As psychological factors such as concerns about monetary policy normalization and government bond supply and demand ease and the economic differentiation between the U.S. and other countries diminishes, a cyclical dollar weakness is expected in the second quarter," adding, "As economic normalization continues to improve fundamentals and relative valuation and the pace of dollar appreciation are adjusted, foreign selling pressure is expected to gradually weaken."

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