KOSPI Hits Record 3600, Led by Semiconductor and Game Stocks... Cryptocurrency Fades

11 Major Securities Firms' Stock Market Outlook
Lowest Expected 2610, Highest 3600
Conflicting Views on High-Top-Low-Bottom and Low-Top-High-Bottom Patterns
Cryptocurrency Expected to Weaken Compared to Last Year

[Asia Economy Reporters Song Hwajeong and Gong Byeongseon] Following the dramatic fluctuations in the domestic stock market after COVID-19, attention is now focused on this year's stock market outlook. The domestic stock market, which experienced a sharp decline immediately after the outbreak of COVID-19, successfully rebounded thanks to the enthusiasm of individual investors and continued to rise steadily, reaching record levels of ‘Samcheonpi’ and ‘Cheonseudak’ last year. However, in the second half of the year, the market showed signs of being trapped in a trading range again, and investors are keenly watching whether this box range trend will continue this year or if the market can resume its upward momentum. Heads of research centers at securities firms forecast that the KOSPI will move between a low of 2610 and a high of 3600 this year. Promising sectors include semiconductors, cyclical stocks, internet, gaming, and other platform-related stocks.

KOSPI Expected to Rise Up to 3600 This Year

On the 2nd, Asia Economy surveyed heads of research centers at 11 major securities firms about this year's stock market outlook. Among the 10 firms that provided expected KOSPI bands, the average lower bound was 2806 points, and the average upper bound was 3406 points. The lowest forecast was 2610, and the highest was 3600. Hwang Seungtaek, head of Hana Financial Investment’s Research Center, said, "This year, the expected returns for the US and domestic stock markets are 10% and 5%, respectively," adding, "Considering the possibility that the US Federal Reserve (Fed) will sequentially implement tapering (asset purchase reduction) and interest rate hikes this year, historically, when the Fed changed its monetary policy, the KOSPI experienced an average price correction of -11% from peak to trough, and the S&P 500 index saw a -9% correction." Hwang also noted, "However, it is necessary to consider that this year the KOSPI’s operating profit scale is absolutely high, and the three-month cumulative domestic export amount is breaking records."

Opinions on this year’s market trend were divided. Five respondents expected a high start and low finish, while six anticipated a low start and high finish. Yoon Changyong, head of Shinhan Financial Investment’s Research Center, said, "With earnings growth rates dropping to single digits, the market can rely on multiple expansion. The combination of a weak dollar and rising dividend payout ratios suggests that the KOSPI’s 12-month forward price-to-earnings ratio (PER) has room to rise by 1 to 2 times from the current level. This year’s KOSPI rise will be determined by foreign investor demand direction," adding, "There are many favorable factors such as the presidential election in the first half and reduced inflation concerns, so the market is expected to reach a peak between the second and third quarters."

There is also a forecast that the market could hit new highs in the first half. Kim Jisan, head of Kiwoom Securities’ Research Center, said, "The first half of this year will see new highs due to the resolution of Fed policy uncertainties, emerging markets gradually returning to normal (with COVID-19), and easing supply shortages after the year-end," adding, "The second half will likely see a reversal of the first half’s gains due to the Fed’s early rate hikes, the US midterm elections, and uncertainties about 2023 earnings."

Kim Hakgyun, head of Shin Young Securities’ Research Center, expects "a similar box range market as last year," saying, "Until the first half, cyclical economic downturn and inflation concerns will persist, but from the latter half of the second quarter, expectations for improvement will be reflected in stock prices, leading to a low start and high finish trend."

Factors expected to influence next year’s market include interest rate hikes, inflation, and global supply shortages. Yoon Seokmo, head of Samsung Securities’ Research Center, said, "Due to inflation and tightening policies, financial market volatility is likely to increase, so risk management is necessary until the first half," adding, "If COVID-19 subsides in the second half and emerging market economic activities normalize, it will act as a positive factor." Jung Yeonwoo, head of Daishin Securities’ Research Center, said, "The COVID-19 situation and the easing of supply chain bottlenecks will be key factors determining this year’s financial market direction," adding, "From the second quarter, bottleneck recovery will become visible and will be fully resolved from the second half, which could lead to easing inflation, interest rate pressures, and monetary policy burdens, as well as expectations for economic recovery."

Variables related to this year’s elections are also anticipated. Seo Cheolsu, head of Mirae Asset Securities’ Research Center, said, "The new government’s economic stimulus package after the presidential election could be a positive variable."

There is also a forecast that the initial public offerings (IPOs) scheduled for the first half will negatively impact stock prices. Lee Seungwoo, head of Eugene Investment & Securities’ Research Center, said, "A large number of IPOs are scheduled in the first half, which is why stock prices are unlikely to rise strongly at the beginning of the year," adding, "When IPO supply increases, buying demand will focus on newly listed stocks, and existing stocks will be sold. In fact, the KOSPI was particularly weak in the second half of last year due to the burden of IPO supply."

Promising stocks this year include cyclical stocks such as semiconductors, as well as internet, gaming, and content stocks expected to benefit from the metaverse. Yoo Jongwoo, head of Korea Investment & Securities’ Research Center, said, "Attention is needed for IT sectors such as semiconductors and displays, as well as software and content," adding, "Especially for semiconductors, companies’ earnings last year exceeded market expectations, the need for investment in data centers is continuously rising, and increased server demand will lead the recovery in semiconductor demand."

Cryptocurrency Falls Short of Last Year Due to Regulatory Uncertainty

The outlook for cryptocurrencies this year is not as bright as last year. Prices have already risen sharply, and regulatory uncertainties remain. Globally, if the ‘Travel Rule’ required by the Financial Action Task Force (FATF) is introduced to cryptocurrency exchanges in each country, one of blockchain’s advantages?borderless remittance?may become somewhat inconvenient. The Travel Rule mandates virtual asset service providers to verify the identity of transaction parties and share related information with other service providers to prevent money laundering. In South Korea, the four major cryptocurrency exchanges (Upbit, Bithumb, Coinone, and Korbit) have established joint ventures or subsidiaries to operate systems related to the Travel Rule implementation.

Joo Ki-young, CEO of CryptoQuant, said, "From a long-term perspective, this is a measure that can lay the groundwork for institutional investors to enter," but added, "In the short term, it will inevitably weaken retail investors’ sentiment, so prices of cryptocurrencies like Bitcoin are expected to be weaker compared to last year."

The possibility of regulation by domestic financial authorities cannot be ignored. If regulations focus on non-fungible tokens (NFTs), which led last year’s investment boom, the decline of NFT-related altcoins that drove the domestic cryptocurrency market’s rise will be inevitable. Moreover, as domestic listed companies are expanding their NFT-related businesses, the impact could be even greater.

Hong Ki-hoon, professor of Business Administration at Hongik University, said, "The negative impact of US interest rate hikes has already been reflected in prices, so there seems to be no significant movement currently," adding, "If financial authorities include NFTs in regulatory targets and intensify pressure, the volatility that is the reason for cryptocurrency investment will decrease."

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