KOSPI to regain vitality in 2020

Rebound of chip industry to drive main bourse's growth

By Lee Min-hyung

Yoon Hee-do, head of research at Korea Investment & Securities

Lee Chang-mok, managing director at NH Investment & Securities' research center

Oh Hyun-seok, head of research at Samsung Securities

Seo Young-ho, head of research at KB Securities

The Korean stock market will begin to recover in 2020 and continue its rebound at least until the first half of the year amid confidence in the export-driven hardware sector, according to market experts.

They predict the benchmark KOSPI will rise to as high as 2,400 points next year. In 2019, the local stock market has fluctuated within a trading band of 1,900 to 2,200.

Despite the overall rosy outlook, they did not rule out the possibility that the index could fall below 2,000 if the United States and China revive their trade tension amid lingering political uncertainties.

The world's two largest economies recently reached a “truce” agreement in their year-long political and economic feud, but it still remains unknown whether they will resume the dispute in consideration of their years-long political war for regional hegemony.

“The KOSPI is expected to challenge the highest level of around 2,370 points in the second quarter of 2020,” said Yoon Hee-do, head of research at Korea Investment & Securities.

Stocks from major hardware businesses, such as IT, vehicles and consumer goods, will be the key drivers of the KOSPI growth next year, Yoon said.

“They will likely post major earnings growth in 2020, compared to a year ago,” he said. “But the local stock market will not be able to report an outstanding rebound on a similar level to 2017 when the KOSPI reached an all-time high.” The KOSPI hit 2,500 for the first time in 2017.

The analyst said this is because Washington and Beijing are yet to end their trade war despite the first-phase truce deal.

Lee Chang-mok, managing director at NH Investment & Securities' research center, shared the same view that the KOSPI will reach its peak in the second quarter next year.

“The index will rise to as high as 2,400 sometime during the April-June period amid hopes for a turnaround in the chip industry market condition,” he said.

Lee picked semiconductor, display and media as the three most promising stocks in 2020.

In particular, Samsung Electronics and SK hynix, the two largest memory chipmakers here, are predicted to post notable earnings growth in line with possibly favorable market conditions in the global semiconductor industry, according to the expert.

LG Display, the world's leading organic light-emitting diode (OLED) display manufacturer, is also expected to raise its valuation next year amid expectations for the firm's turnaround driven by earnings growth in its OLED business, Lee said.

But the local stock market will remain vulnerable to how the trade war between the U.S. and China unfolds next year, he said.

“Assuming that the dispute finishes before the first half of next year, large-cap export-driven stocks, such as semiconductors, IT hardware and steel, will become the biggest beneficiaries here,” he said.

Oh Hyun-seok, research head at Samsung Securities, said the KOSPI would rise as high as 2,350 sometime in the third quarter of 2020.

He also expected semiconductor stocks to raise their valuation by a huge margin next year.

“Semiconductor players will be able to report about 20 percent growth in their net profits in 2020, compared to the previous year,” he said. “Samsung Electronics will be able to achieve a major turnaround on improvement of memory chip market conditions.”

A potential recovery in the smartphone industry is also expected to help drive up Samsung's earnings, Oh said.

In the software sector, he picked Kakao as the most promising stock. The nation's largest messenger application operator will improve its profitability in 2020 on potentially solid growth of the firm's advertisement sales, he said.

Seo Young-ho, head of the research unit at KB Securities, expected the KOSPI to reach 2,400 points in the third quarter of 2020 amid a rosy outlook for the IT parts industry.

Aside from the ongoing trade feud between the U.S. and China, he pointed to the result of the 2020 U.S. presidential election as having a significant impact on the KOSPI.

The election will take place on Nov. 3. The key lies in whether U.S. President Donald Trump will win reelection, as chances are the unpredictable leader will resume trade disputes with China after the election, according to the analyst.

“If Trump is reelected, concerns are that he will restart the trade conflict with China,” Seo said. “It also remains unclear whether Elizabeth Warren and Bernie Sanders will be able to win the election.”

All the analysts also reached a consensus that investors should pay more attention to the U.S. stock market in 2020.

The most promising industry sectors in 2020 around the globe are IT, healthcare and industrial goods, according to Yoon.

“The U.S. stock market index will rise next year, as the country's financial market condition is expected to remain solid,” he said. “On top of that, we expect S&P 500 companies' earnings per share to grow by 8 percent in 2020, compared to a year ago.”