Three Scenarios for the Second KOSPI Rally: Earnings, Exchange Rates, and Policy
by Cho Seulkina
Pubilshed 28 Jul.2025 08:51(KST)
Updated 28 Jul.2025 08:54(KST)
Hana Securities has presented three scenarios outlining the potential basis for a second rally in the KOSPI, suggesting that after an initial rise followed by a short-term adjustment in July, the index could jump to the 3,710 level. In addition to tariffs, other variables that could increase the likelihood of a market correction in August include corporate earnings, a policy vacuum from the US Federal Reserve (Fed), and the strengthening of the Japanese yen.
On July 28, Lee Jaeman, a researcher at Hana Securities, stated in the report "August Stock Market Outlook and Strategy," "The typical pattern in a KOSPI bull market is an initial rise followed by a first correction (an average -7% adjustment from the previous peak), and then a second rally. It is now time to prepare scenario strategies based on what will drive the second KOSPI rally." Hana Securities’ upper forecast band for the KOSPI is 3,710.
First, Lee identified "a second rally based on corporate earnings" as the first scenario. He explained, "In a liquidity-driven market, investors select sectors in anticipation of an earnings-driven phase, so the earnings cycle becomes a crucial factor in determining the leading sectors during a KOSPI level-up rally." He projected that in 2025, KOSPI operating profit and net profit would reach record highs of 288 trillion won and 206 trillion won, respectively.
However, he also pointed out that "tariffs" represent a critical challenge for corporate earnings. He said, "If the KOSPI’s second rally is based on earnings, tariffs must be taken into account." For domestic stock selection, he suggested companies with strong pricing power and sales less sensitive to volume changes, such as HD Hyundai Heavy Industries, Hanwha Ocean, Korea Electric Power, and Hyundai Rotem.
The second scenario is "a second KOSPI rally driven by a stronger won against the dollar." Lee noted, "Historically, KOSPI re-rating has occurred during periods when the won strengthened against the dollar." He highlighted that, based on their outlook, the dollar-won exchange rate could bottom out at 1,300?1,310 won in the second half of the year, compared to the current rate of about 1,370?1,380 won per dollar.
He further explained that since 2011, on a quarterly basis, when both the US 10-year Treasury yield and the dollar-won exchange rate declined, foreign net buying in the KOSPI was strong. Sectors with a higher probability of net foreign buying included telecommunications, media, steel, insurance, and construction. He added that a selection strategy based on exchange rates should focus on domestic companies with a significant decrease in foreign ownership and those expected to see operating profit growth in the first half of 2025, such as Samsung Electronics, NAVER, POSCO Holdings, and LG Chem.
Finally, Lee suggested that "a second KOSPI rally could be driven by strengthened shareholder-friendly policies." He expects that with the launch of the new government, policies such as separate taxation on dividend income and mandatory share buybacks and cancellations will be implemented. He cited the example of Japanese trading companies, where a surge in share buybacks and increased payout ratios led to a re-rating of their price-to-book ratios (PBR).
For domestic stock selection, he recommended companies with a high free cash flow (FCF) ratio to sales, a low payout ratio (35% or less), and strong control by the largest shareholder, enabling swift decision-making. Examples include Samsung C&T, Korea Electric Power, HD Korea Shipbuilding & Offshore Engineering, Samsung SDS, and LIG Nex1.
Additionally, regarding the US New York Stock Exchange, Lee advised investors to focus on S&P 500 companies that return profits to shareholders and, if tariffs cannot be avoided, on companies with strong pricing power. Notable examples include Nvidia, Microsoft (MS), and Broadcom, which are expected to achieve record-high profits, as well as Meta, Oracle, Palantir, and Coca-Cola, which saw operating margins rise with a one-quarter lag following an increase in cost of goods sold ratios.
Lee concluded, "Both the US and Korean stock markets are facing the issue of tariffs. The concern is not about whether tariff negotiations succeed or fail, but rather that the imposition of previously nonexistent tariffs could continue to fuel worries over inflation and deteriorating corporate profitability." He also mentioned corporate earnings announcements, the Fed’s policy vacuum, tariff imposition issues, and yen strength (due to a Bank of Japan rate hike) as variables to watch in August.
On July 28, Lee Jaeman, a researcher at Hana Securities, stated in the report "August Stock Market Outlook and Strategy," "The typical pattern in a KOSPI bull market is an initial rise followed by a first correction (an average -7% adjustment from the previous peak), and then a second rally. It is now time to prepare scenario strategies based on what will drive the second KOSPI rally." Hana Securities’ upper forecast band for the KOSPI is 3,710.
On the 18th, the KOSPI index along with the won exchange rate and others were displayed on the monitor in the dealing room of Hana Bank in Jung-gu, Seoul. On that day, the KOSPI opened at 3200.44, up 8.15 points (0.26%) from the previous close, but as of 10 a.m., it continued to decline. 2025.7.18 Photo by Cho Yongjun
원본보기 아이콘First, Lee identified "a second rally based on corporate earnings" as the first scenario. He explained, "In a liquidity-driven market, investors select sectors in anticipation of an earnings-driven phase, so the earnings cycle becomes a crucial factor in determining the leading sectors during a KOSPI level-up rally." He projected that in 2025, KOSPI operating profit and net profit would reach record highs of 288 trillion won and 206 trillion won, respectively.
However, he also pointed out that "tariffs" represent a critical challenge for corporate earnings. He said, "If the KOSPI’s second rally is based on earnings, tariffs must be taken into account." For domestic stock selection, he suggested companies with strong pricing power and sales less sensitive to volume changes, such as HD Hyundai Heavy Industries, Hanwha Ocean, Korea Electric Power, and Hyundai Rotem.
The second scenario is "a second KOSPI rally driven by a stronger won against the dollar." Lee noted, "Historically, KOSPI re-rating has occurred during periods when the won strengthened against the dollar." He highlighted that, based on their outlook, the dollar-won exchange rate could bottom out at 1,300?1,310 won in the second half of the year, compared to the current rate of about 1,370?1,380 won per dollar.
He further explained that since 2011, on a quarterly basis, when both the US 10-year Treasury yield and the dollar-won exchange rate declined, foreign net buying in the KOSPI was strong. Sectors with a higher probability of net foreign buying included telecommunications, media, steel, insurance, and construction. He added that a selection strategy based on exchange rates should focus on domestic companies with a significant decrease in foreign ownership and those expected to see operating profit growth in the first half of 2025, such as Samsung Electronics, NAVER, POSCO Holdings, and LG Chem.
Finally, Lee suggested that "a second KOSPI rally could be driven by strengthened shareholder-friendly policies." He expects that with the launch of the new government, policies such as separate taxation on dividend income and mandatory share buybacks and cancellations will be implemented. He cited the example of Japanese trading companies, where a surge in share buybacks and increased payout ratios led to a re-rating of their price-to-book ratios (PBR).
For domestic stock selection, he recommended companies with a high free cash flow (FCF) ratio to sales, a low payout ratio (35% or less), and strong control by the largest shareholder, enabling swift decision-making. Examples include Samsung C&T, Korea Electric Power, HD Korea Shipbuilding & Offshore Engineering, Samsung SDS, and LIG Nex1.
Additionally, regarding the US New York Stock Exchange, Lee advised investors to focus on S&P 500 companies that return profits to shareholders and, if tariffs cannot be avoided, on companies with strong pricing power. Notable examples include Nvidia, Microsoft (MS), and Broadcom, which are expected to achieve record-high profits, as well as Meta, Oracle, Palantir, and Coca-Cola, which saw operating margins rise with a one-quarter lag following an increase in cost of goods sold ratios.
Lee concluded, "Both the US and Korean stock markets are facing the issue of tariffs. The concern is not about whether tariff negotiations succeed or fail, but rather that the imposition of previously nonexistent tariffs could continue to fuel worries over inflation and deteriorating corporate profitability." He also mentioned corporate earnings announcements, the Fed’s policy vacuum, tariff imposition issues, and yen strength (due to a Bank of Japan rate hike) as variables to watch in August.
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