Several South Korean brokerages expressed optimism about the Korea Composite Stock Price Index (KOSPI) on Jan. 2, the first trading day of the new year, citing that “the KOSPI has never declined for two consecutive years since the 1997 financial crisis” and “the KOSPI is currently at its most undervalued state.”
Last year, the KOSPI fell by 9.6% and the KOSDAQ dropped by 21.7% due to domestic and international challenges, including Trump-related risks and the martial law and impeachment crises. The KOSPI’s monthly performance also declined for six consecutive months starting in July, marking its longest downturn in 16 years.
However, analysts predict a recovery in the South Korean stock market this year, with strong performance expected in small- and mid-cap stocks in chemicals, steel, and defense sectors. They argue that if uncertainties both domestically and internationally are resolved in the first half, the undervalued market could experience significant upward momentum.
Still, caution persists. Among 12 major securities firms, NH Investment & Securities and iM Securities predict the KOSPI’s lower range could drop as low as 2,250 this year, indicating a potential 6% decline from current levels. The KOSPI closed at 2,398.94 on Jan. 2, down 0.02%, failing to regain the 2,400-point threshold.
Lee Sung-hoon, an analyst at Kiwoom Securities, said that “last year’s risks have been largely reflected in the market, limiting further downward pressure.” He added, “As this year’s risks resolve, the domestic market might show stronger upward momentum compared to the U.S. market.” According to Kiwoom Securities, after both the KOSPI and KOSDAQ posted negative annual returns since 2000, the following years saw average gains of 25.3% and 19.8%, respectively.
Daishin Securities analyst Park So-yeon noted, “The KOSPI has never fallen for two consecutive years since the 1997 financial crisis,” adding, “Despite pessimism fueled by a strong dollar, this creates opportunities for bargain hunting in the domestic stock market.”
Yang Hae-jung of DS Investment & Securities also noted that the Korean won, which recently surged to 1,480 won per U.S. dollar, tends to experience corrections after excessive depreciation, often accompanied by a stock market rebound. “The Korean won and KOSPI might currently be at their most undervalued levels,” Yang said.
Securities analysts also predict robust performance for small- and mid-cap stocks in sectors such as shipbuilding and machinery, driven by expectations of improved earnings. Last year, foreign investors concentrated their selling on semiconductor and secondary battery stocks, causing declines in major large-cap stocks, while small- and mid-cap stocks showed resilience. According to data from the Korea Exchange on Jan. 2, the KOSPI 200 Top 10 index, comprising the top 10 KOSPI stocks by market capitalization like Samsung Electronics and SK Hynix, dropped 8.37% over the past year. In contrast, the KOSPI 200 MidSmallCap index, tracking the bottom 100 KOSPI 200 stocks by market capitalization, rose 2.46%.
The KOSPI 200 MidSmallCap index includes stocks such as HD Hyundai Heavy Industries, Hyosung Heavy Industries, and Kiwoom Securities, which have benefited from corporate value enhancement programs and robust earnings expectations. Lee Kyung-soo, an analyst at Hana Securities, pointed out, “With the resumption of short selling in March and slowing corporate earnings growth, the market could favor small- and mid-cap stocks.” Lee explained that short selling typically targets large-cap stocks, while investors take long positions in other stocks, benefiting smaller firms.
