Large-cap Stocks Falter... Can the KOSPI Rally to a New High?

[Asia Economy Reporter Ji Yeon-jin] Although the KOSPI index has recently surpassed its historical high again this month, large-cap stocks with high market capitalization are showing signs of hesitation. This is analyzed to reflect concerns over the rekindling of trade conflicts between the U.S. and China and the resumption of short selling starting next month. However, due to the strong performance of domestic companies, the stock market is expected to continue its earnings-driven trend, and the rally to new highs is anticipated to persist.

According to Samsung Securities on the 24th, looking at the KOSPI operating profit trend over the past five years, the operating profit consensus, which was around 170 trillion won at the beginning of 2017, steadily rose to 194 trillion won, and the KOSPI index broke out of the box range from 2000 to 2500. On the other hand, in 2018, although profits were recorded at the 2017 level, the market failed to meet the increased consensus, and by the end of the year, it returned to 2000.

Since stock prices are a function of earnings and multiples, for the market to rise, either the earnings trend must increase or the multiples must rise. Last year, the stock market experienced a liquidity-driven rally as market multiples rose due to the low-interest-rate environment following COVID-19 and the resulting massive liquidity inflow.

This year, during the normalization process after COVID-19, an earnings increase is necessary. The current annual operating profit forecast for the KOSPI is around 203 trillion won, showing a steady upward trend since the beginning of the year. Shin Seung-jin, a researcher at Samsung Securities, said, "When uncertainties about future earnings forecasts are gradually removed rather than the absolute level of current earnings, our market will be able to stage an unprecedented rally to new highs again."

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