"KOSPI could reach 7,500"…a bold forecast has emerged

A striking forecast from the securities industry said the KOSPI index could reach as high as 7,500 next year. It also judged that concerns about an artificial intelligence (AI) industry bubble raised by some in the market are premature.

KB Securities, in a report titled 'KOSPI, a pause in the major bull market' on the 6th, presented a next-year KOSPI target of the 5,000 level and, under a long-term bull market scenario, the 7,500 level.

Kim Dong-won, Head of Research at the securities firm, said, "We assess that the market has entered a bull market for the first time in 40 years since 1985 due to valuation expansion from the '3-lows boom' and the start of the KOSPI earnings cycle," adding, "It could be revised depending on future changes in earnings forecasts, but under the long-term bull market scenario the KOSPI index could rise to the 7,500 level."

He added, "With PBR valuation multiples expanding rapidly due to the '3-lows boom', next year's KOSPI operating profit is expected to be 401 trillion won, a 36% increase year-on-year, the largest on record," and, "the record earnings will drive the KOSPI index higher."

Currently, KOSPI's PBR is 1.4x, and it is analyzed as trading at a 60% discount compared with global markets (3.5x), and at discounts of 37% and 21% compared with Asia (2.2x) and Japan (1.7x), respectively. The report forecasts that despite the recent sharp rise in the KOSPI, it will stand out as an attractive destination for global investors going forward.

Kim judged that the recent correction in the KOSPI index is similar to the situation in April 1984 during the '3-lows boom' phase. He explained, "Past correction factors were due to regulation and tightening," and added, "At that time the KOSPI fell 10.9% and the correction lasted one month," saying, "After the sharp fall in April 1986 the market traded sideways for 3~4 weeks and then began to rebound again, as over time the feared negative factors such as tightening were resolved and market attention shifted to the second-quarter earnings season."

Kim assessed that concerns about AI overvaluation that crashed the domestic market are only unfounded fears. He said, "Comparisons this year between the AI industry and the 1999 dot-com bubble are premature," explaining, "the market environment under U.S. government policy in 1999 and the fundamentals of dot-com companies then show clear differences from the current situation."

He went on, "In 1999 the U.S. had entered a rate-hiking period while maintaining government budget surpluses and pursued tightening policies, which contrasts with the current accommodative U.S. monetary and fiscal policies," and analyzed, "The average P/E of dot-com companies in 1999 was 60x, whereas the average P/E of current AI companies is only 30x, about half that level."

He also said, "Considering the growth inflection points of the global information technology (IT) industry over the past 40 years, AI is judged to be the third industrial revolution after PCs (internet) and mobile (iPhone)," and explained, "PC and mobile industries sustained long periods of high growth for 10–15 years after their emergence."

Kim emphasized that the AI industry has only been around three years since ChatGPT was released in November 2022, and the AI expansion cycle is only just beginning. In this situation, the report listed KOSPI strategic sectors as △semiconductors △nuclear power △defense △securities, and top picks as △Samsung Electronics △SK Hynix △Doosan Enerbility △Korea Electric Power Corporation △Hyundai Engineering & Construction △Hyundai Rotem △Korea Financial Group.

Ko Jeong-sam, Hankyung.com reporter jsk@hankyung.com