Seoul stocks expected to continue bullish run in 2021

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Experts forecast KOSPI to break 3,000 barrier on ample liquidity

By Anna J. Park

Nearing the end of the year, the benchmark KOSPI is continuing its rally based on ample liquidity and investors' rosy outlook on listed companies' business performance for next year.

This month alone, the KOSPI renewed its all-time high several times, reflecting both retail and foreign investors' huge interest in Korean stocks. Since Nov. 2, the KOSPI has risen 20.4 percent from 2,300.16 points to 2,772.18, Dec. 18.

The KOSPI saw a daily average of 11 trillion won ($10 billion) worth of transactions this year, a 130 percent rise compared to last year, while the tech-heavy KOSDAQ's average daily transactions also rose 140 percent to 10 trillion won over the same period. Retail investors' share in these transactions took up about 76 percent of trading, up 11 percentage points from last year.

Will this fever in the stock market continue in 2021? Predictions for stock markets might sound futile to some, given that such year-end forecasts given at the end of last year and early this year were blind-sided by the unprecedented COVID-19 pandemic that brought about a huge crash in mid-March. Yet it could allow laymen to earn some insights from financial experts' take on stock market conditions.

Despite a grain of caution included, financial experts here maintain a bright outlook for the local stock markets. Brokerage houses forecast that next year's KOSPI could reach the 3,000 mark for the first time.

U.S.-based JPMorgan was most optimistic, as it predicted in a recent report that the benchmark index could soar to 3,200 points next year. Such a rosy forecast is based on expectations that local companies' operating and net profits will increase by 56 percent and 53 percent, respectively, in 2021.

The global financial firm's report stated that Korean companies' strengthened focus on dividend payments and environmental, social and corporate governance (ESG) principles would also improve the so-called “Korea discount” ― which refers to the undervaluation of Korean stocks ― next year. Semiconductor, electric vehicles (EVs) and 5G are selected as preferred sectors.

Daishin Securities suggested the KOSPI will hit 3,080 points, the highest level forecast among local securities firms, followed by Heungkuk Securities' 3,000, and 2,900 by Hana Financial Investment and SK Securities. Samsung Securities expected the benchmark index to reach 2,850 points while NH Investment, Meritz Securities and Yuanta Securities Korea suggested 2,800. Shinhan Financial Investment and KB Securities were most conservative in their predictions with 2,750 points.

Improved corporate profits next year to lift Korean stock markets

Stock analysts say Korean stock markets' positive outlooks are based on listed companies' solid performances.

“Valuation increases are taking place in most stock markets across the world. Given Korean listed companies' expected growth in profits and competitiveness in the manufacturing sector, the stock markets' sound performance is expected to continue next year,” said Kim Hak-kyun, research head at Shinyoung Securities.

He added that KOSPI listed companies expect to see their annual profits grow by 45 percent next year. However, the expert warned of possible stock price bubbles. The 12-month forward P/E hit 13.15 times in August; the current 13.7 times is the highest level since June 2000 when the figure stood at 20.1 times during the overheated IT boom at that time.

The expert also expected the resumption of short-selling from next March could impact some particular sectors like biopharmaceuticals, yet overall it won't drag down the market.

“The resumption of short-selling could impact certain sectors, such as bio and biopharma industries. Yet overall, it will be a neutral factor from the perspective of the market,” Kim explained.

Lee Jae-sun from Hana Financial Investment also expected improved exports by Korean companies would lead the KOSPI's growth next year.

“Export growth is expected to basically back up the stock index, as the export growth rate is forecast to continually increase until the second quarter next year,” the analyst pointed out, adding that strong performances by the semiconductor, automotive and chemical sectors would make it possible for the KOSPI to reach the 3,000-point mark.

Yet the expert warned of the possibility that the market could become stagnant, when governments stop monetary easing policies once economies are normalized after widespread vaccine distribution.