Upbeat outlook for 2024 Korean stocks over widely anticipated US rate cuts
The Korean stock market is poised to take an upturn next year, driven mainly by the U.S. Federal Reserve’s shift to a dovish monetary policy and widely anticipated multiple rate cuts, according to top analysts of securities firms.
In a year-end survey conducted by The Korea Times on eight brokerage houses, the firms’ heads of research nevertheless varied in their outlooks concerning when in 2024 the benchmark KOSPI will enter bull market territory.
The analysts predicted it will depend on the timing of the Fed’s pivot as well as the pace of U.S. rate cuts, in tandem with U.S. inflation that is consistently easing toward the Fed’s 2 percent annual target.
They also forecast the risks associated with the 2024 U.S. presidential election can build on the Seoul market, especially considering the unpredictable, impulsive former U.S. President Donald Trump can re-run for the presidency.
“The KOSPI is anticipated to reach a peak in the third quarter of 2024, possibly in September,” said NH Investment & Securities’ Ted Oh.
Oh was with a group of experts who forecast the market to display a trend of “down in the first half of the year, up in the second half of the year.”
He predicted the Fed will start cutting rates in June, and bring down the benchmark rates by 100 basis points from the current range of 5.25 percent to 5.5 percent.
“The cuts will significantly reduce uncertainties linked to the U.S. monetary policy, which, in turn, will prompt the KOSPI’s rebound in the latter half led by U.S. presidential election-related stocks,” Oh added.
Lee Kyung-su of Meritz Securities voiced a similar view.
He noted that, while the U.S. presidential election is scheduled for Nov. 5, “potential candidates may be decided after Super Tuesday in March and much of the U.S. election-linked uncertainties will be cleared by then."
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Jay Yoo of Korea Investment & Securities had a different opinion, suggesting an upward trend in stock prices in the first half but sluggish performance in the six months thereafter.
“The investors are upbeat because they expect the U.S. rate cuts will lead to a bull market, but what goes unnoticed is that such rate cuts will come in a bid to counter a U.S. economic slowdown that can negatively affect the market,” Yoo said.
In its updated economic projections in December, the Fed raised the annual growth in gross domestic product (GDP) to 2.6 percent from 2.1 percent for 2023 but lowered it to 1.4 percent from 1.5 percent for 2024.
The unemployment rate is expected to rise to 4.1 percent in 2024 from the current 3.7 percent and continue at that level in 2025 and 2026.
“The U.S. growth slowdown will keep offsetting the positive impact of the rate cuts on the Seoul market, and in that regard, investor sentiment will weaken as time goes on in 2024,” Yoo said.
Yoon Chang-yong of Shinhan Securities reckoned the possibility of Trump being reelected as American president will “heighten market volatility in the second half.”
Hwang Seung-taek of Hana Securities and Yun Sok-mo of Samsung Securities each forecast an “N-shaped” growth for the 2024 KOSPI.
The growth pattern is characterized by a market rally racing higher, before succumbing to risks but then overcoming them.
Republican presidential candidate and former U.S. President Donald Trump attends a campaign event in Waterloo, Iowa, Dec. 19. Reuters-Yonhap
Semiconductor, AI stocks look promising
Taking the key U.S. economic indexes into account, The Korea Times' survey showed that the KOSPI’s 2024 trading range will be between 2,250 and 2,750 points on average.
Korea Investment & Securities, Meritz Securities, Samsung Securities and Shinhan Securities suggested 2,200 points concerning the lows.
Regarding the stocks’ highs, Kim Ji-san of Kiwoom Securities predicted that the main bourse would recover to as high as 2,900 points.
This year’s KOSPI, meanwhile, is nowhere close to the 3,000 level as of the end of December.
When asked about promising stocks, all analysts picked the semiconductor sector.
“The sector will be especially noteworthy as the semiconductor downturn cycle is over and global demand is recovering,” said Jeff Kim and Kim Sang-hoon, both from KB Securities.
They said the artificial intelligence (AI) industry will bolster a chip stock rally, as an AI-related software boom “will be in full swing beginning in 2024.”
Lee of Meritz Securities assessed that AI firms are in an early stage of business-to-business (B2B) commerce, and will expand to business-to-customer (B2C) commerce in the coming years.
Yun of Samsung Securities said the AI industry “will consistently grow under the accelerated development of digital technology,” adding, “The relevant stocks thus will draw investors’ attention.”
The Kiwoom Securities analyst forecast that promising stocks will vary over time in 2024.
He assessed the stocks of chips, cars and other export-centered sectors have high potential to generate revenue in the first half.
For the latter half, he viewed stocks of bioscience, secondary batteries and other emerging industries to have earnings growth potential.
On the prospects of the won-dollar exchange rate, Kiwoom Securities was most optimistic about the Fed’s rate cuts and subsequent weakening of the value of the U.S dollar.
It suggested the won-dollar exchange rate will fall to as low as 1,200 won ($0.92), as compared to the annual high of 1,363.5 won in 2023.
NH Investment & Securities and Korea Investment & Securities estimated the lowest exchange rate at 1,250 won.