South Korea’s equities market is undergoing what investors dub a “renaissance,” as global investment banks are steadily upgrading their outlooks on the Kospi benchmark stock index, while predicting a sustained rally across industries ranging from semiconductors to shipbuilding, defense and K-culture.
Foreign investors have bought more than 3 trillion won ($2.2 billion) worth of Korean stocks this month, led by chipmakers Samsung Electronics Co. and SK Hynix Inc. as well as new market darlings such as Hanwha Aerospace Co., Hyundai Rotem Co., HD Hyundai Electric Co., Hyosung Heavy Industries Co. and CJ Corp.
Korea’s main bourse on Wednesday closed at a record high, lifted by strong foreign and institutional demand for financial and blue-chip tech stocks, bringing the Kospi’s year-to-date performance to over 38%, the highest gain among 42 major benchmarks in 32 countries.
The Kosi continued its upward trend on Thursday, closing 0.9% higher at a fresh record-high of 3,344.2.
UPWARD RERATING OF KOREAN STOCKS
The renewed foreign fund inflows come as global investment banks are rerating Korean stocks upward.
In its recent research note, JPMorgan called Korea “the most attractive market in Asia,” followed by India, Hong Kong, China and Taiwan, as the region enters what it described as a “Goldilocks rally.”
Hong Kong-based CLSA is among the most optimistic.
The brokerage said it expects the Kospi to climb more than 30% from the current level to 4,500 points, powered by a broad range of sectors such as finance, chips, shipbuilding, nuclear power and K-culture.
“The Korean market, once seen as a pure semiconductor play, has evolved into a high-end ‘department store’ of industries,” said the head of a Seoul-based asset manager.
Another asset management firm executive said: “AI chips, shipbuilding, defense and nuclear power are all long-cycle businesses where major economies have little choice but to rely on Korean capacity.”
The popularity of K-culture, triggered by Netflix’s animated sensation KPop Demon Hunters, is also reviving, boosting shares of entertainment stocks, analysts said.
TOP 30 KOSPI-LISTED FIRMS’ ROE AT A DECADE HIGH
The upbeat mood is underpinned by improving corporate fundamentals.
A survey of Korea’s top 30 Kospi-listed firms by Daishin Securities Co., commissioned by The Korea Economy Daily, showed the 30 largest-capitalization companies are on track to deliver an average return on equity (ROE) of 12.3% this year, the highest in a decade and well above the 11.9% peak in 2015, when Korea’s current account surplus was at record levels.
That marks a sharp turnaround from the COVID-19 pandemic low of 3.7% in 2020, when Korean blue chips were squeezed by US Big Tech firms and Chinese manufacturers.
Analysts said the recovery in semiconductors, coupled with the revival of the shipbuilding and defense sectors, has lifted the overall resilience of corporate earnings.
Sectors once left for dead are now pulling their weight.
HD Hyundai Heavy Industries Co., Hanwha Aerospace and HD Korea Shipbuilding & Offshore Engineering Co. are projected to post ROEs of 22.9%, 19% and 17.5%, respectively, this year.
Hyundai Rotem, Meritz Financial Group Inc. and Korea Electric Power Corp. are also forecast to improve their earnings with their 2025 ROE of 28.2%, 21.4% and 17.1%, respectively.
HURDLES TO 5,000-POINT KOSPI
Global banks also highlight governance reforms, strengthened shareholder return policies, the K-beauty boom and rising entertainment exports as reasons behind their upward rerating.
Risks remain, however.
Persistent US inflation, the uncertainty over Federal Reserve policies and geopolitical risks across the globe could weigh on sentiment, analysts said.
“The path to 5,000 on the Kospi is open, but the market will need to climb a wall of worry,” said Kim Young-il, head of research at Daishin Securities.
By Han-Shin Park and Ye-Jin Jun
phs@hankyung.com
In-Soo Nam edited this article.
