Experts positive on Kospi's rally despite concerns over bubble

Local brokerages suggest Kospi's yearly upper-end target band up to 3,500 points

An electric board at the Korea Exchange shows Kospi's first time closing above the 3,000-points on Thursday. (Yonhap)

South Korea’s benchmark Kospi closed above the 3,000 points for the first time Thursday, as well as rising to an all-time high of 3,055.28 during intraday trading. Retail investors’ buying binge led the historic 3,000-point milestone a day earlier although the index ended up closing at 2,968.21 points.

While the era of Kospi 3,000 has wide opened, multiple brokerage houses raised stock price outlook for this year, setting the upper-end target band to 2,830-3,500 points. They predicted the nation’s main bourse would continue the upward movement, backed by growing expectations for the global economic recovery.

“Since major nations have rolled out reflation policies and the development process of COVID-19 vaccines and treatments has accelerated, hopes of a quick global economic recovery have also risen fast,” said Kim Yong-koo, an analyst at Samsung Securities. “Driven by those positive factors, fundamentals such as Korea’s exports and corporate performance are likely to be normalized quickly.”

Hwang Sei-woon, a research fellow at the Korea Capital Market Institute, also told The Korea Herald that the main bourse is likely to further rise to 3,100 points as early as next week. The expert predicted that small investors’ fresh funds will continuously flow into the market at least until the first half of this year.

“Considering the rapid rise of the Kospi, the market could be seen as it has entered the short-term overheating phase. The index crossing the 3,000 mark was mainly led by small investors’ massive net purchases, but the fast-paced growth should be under control for now.”

To keep the Kospi above the 3,000-point mark, retail investors, foreigners and institutions need to rotationally lead the market, he added.

“Thankfully, foreign and institutional investors turned to net buyers today. With the cycle, investors need to be aware that the index may face sudden corrections.”

Other market watchers also warned that local stocks have almost hit the peak of a bubble. Daishin Securities senior investment strategist Lee Kyoung-min said that strong rallies from the end of last year to early this year have caused a huge burden on market valuation, while forecasting the monthly Kospi target range of 2,650 to 3,040 points.

“This year’s rally was predictable based on Kospi’s upward movements during November and December last year. Topping 3,000 points is just a beginning,” Lee said. “In a short run, it may seem good to see the market rallying, but an excessive rise will likely to cause greater side effects. It needs some breaks.”

Kospi started off at 2,980.75, up 12.54 points or 0.42 percent, from the previous session’s close. Fueled by institutional investors’ net purchasing, the benchmark rose above 3,000 points within a minute of the market opening. As foreign investors later joined to buy local shares, the index gained over 2 percent to end trading at 3,031.68 points.

By Jie Ye-eun (yeeun@heraldcorp.com)

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