Analysts project Korean stock market rally in H1

South Korean stocks have regained most of the ground lost in the October 2018 plunge, with analysts projecting the benchmark index to reclaim the 2,390 mark in the first half of the year.

The main Kospi rose 0.54 percent, or 12.07, from the previous session to finish Monday at 2,262.64. It briefly touched 2,277.23 during mid-day trading, the highest since December 2018 when it reached 2,274.49. It closed Tuesday 1.01 percent lower at 2,239.69.

Offshore and retail investors have been driving the recent rally, showing net purchases of nearly 1.8 trillion won ($1.54 billion) each. Their voracious appetite for local stocks has helped recoup most of the losses from October 2018 when the Kospi plunged 13.2 percent in a single month – from 2,338.88 to 2,029.69 – posting its biggest monthly drop since the 2008 financial crisis.

According to forecasts of five brokerage research centers compiled by Maeil Business Newspaper, the Kospi was projected to reach 2,390 in the first half of the year, climbing an additional 5.63 percent over the next five months.

Analysts cited greater liquidity worldwide, a strong cyclical rebound and eased tensions from the U.S.-China trade deal as the main factors driving the stock market run.

U.S. stock benchmarks also posted new records last Friday, with the S&P 500, the Nasdaq Composite and the Dow Jones Industrial Average pushed to all-time highs.

“The U.S. Federal Reserve has been expanding its balance sheet by buying about $60 billion a month in Treasury bills, a process that is expected to continue through the second quarter and impact the prices of financial products,” said Lee Chang-mok, the research center head of NH Investment & Securities.

The signing of the phase-one trade deal between the United States and China last week has added optimism to global trade prospects. Korea’s stock market took a bigger hit from the two-year trade war compared to its peers, given its heavy trade reliance on the world’s two biggest economies. But Asia’s fourth-largest economy has been one of the best performing markets so far this year, with investor sentiment buoyed by the pause in the tariff war.

One worrying sign is Kospi’s price-earnings ratio (PER), which has surged to the highest since the global financial crisis a decade ago. A high PER means that the stock is overvalued, or that investors expect high growth rates in the future. Kospi’s PER in late 2019 stood at 11.73, the highest since late 2010 when it was 10.04, according to a study on Kospi’s forward 12-month PER by market researcher FnGuide.

Other uncertainties persist, including the U.S. presidential elections in November and the second round of trade talks between the U.S. and China.

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