Experts optimistic over KOSPI amid possible tapering

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Despite possible short-term corrections, general upward movement expected for 2021

By Anna J. Park

Despite market concerns over possible tapering measures, experts are remaining optimistic over the future course of the KOSPI, as they expect that the index could rise to 3,700 points, an increase of over 15% over the current level.

According to recent reports by leading brokerage firms, the KOSPI's expected moving range has been set between 3,400 to 3,700 points during the second half of this year.

Shinhan Financial Investment was the most positive about local stock markets' future performances, suggesting that the KOSPI index could hit 3,700 points, in the best scenario, during the second half of this year, followed by Heungkuk Securities' forecast of 3,600 points, and Daishin Securities' prediction of 3,630 points.

Hanwha Securities expects the index to rise as high as 3,500 points, while IBK Securities and Eugene Investment & Securities both presented the highest level to be around 3,400 points during the second half of this year.

Solid earnings by companies and a gradual recovery of the local economy, thanks to the vaccination campaign in the works following President Moon Jae-in's summit with U.S. President Joe Biden, were cited as the core factors. The effects of potential valuation correction of the stocks, due to a possible shift of changes in the global monetary policies, are also expected to be limited, due to strong corporate business performances and expected profits.

“The KOSPI forecast of 3,700 points, in the best-case scenario, during the second half of the year, comes out as calculating into the average 10 percent of the discount rate of stocks' valuations. These valuations took place during the past global tapering period, under the assumption that this year's profit improvement rate will continue as it has been,” Kim Sang-ho, an analyst at Shinhan Financial Investment, said. He added that better-than-expected corporate earnings for the current quarter could offset any estimated negative impacts from the change of global monetary policies.

In addition, U.S. markets' expected recovery, in terms of consumption during the second half, with the country's vaccination program complete, would also be expected to increase short-term demand in the global economy a lot, allowing Korean stocks to enjoy the effect as well.

Plus, JPMorgan recently adjusted its annual KOSPI performance prospects from its earlier number of 3,200 points, predicted back in December, to 3,500 points. Goldman Sachs also presented 3,700 as its updated target, from its previous forecast level of 3,200 points.

“Although global stock markets' general upward movement throughout the second half sounds valid, the stocks of both Korea and the U.S. will stop seeing their price-to-earnings ratios (PER) rise further, as each country's monetary policies cannot be significantly extended from the current levels,” Huh Jae-hwan, an analyst at Eugene Investment & Securities, said.