KOSPI Seen at 6,900-7,800 After Crossing 7,000 as Earnings Drive Gains

NH Investment & Securities expects the Kospi to trade in a 6,900 to 7,800 range this week.

Brokerages say earnings momentum will continue to support the Kospi this week, from May 11 to May 15, after the benchmark index opened the era of 7,000 last week.

NH Investment & Securities said on May 10 that the Kospi is projected to move between 6,900 and 7,800 this week. Na Jeong-hwan, an analyst at the firm, wrote that while the index has surged in the short term, the current advance is underpinned by upward earnings revisions.

Na said the Kospi's net profit estimate for this year stands at 698.9 trillion won ($505.7 billion). Semiconductor earnings are estimated at 481.3 trillion won ($348.4 billion), up 252% from the start of the year, while combined net profit for non-semiconductor sectors is seen at 217.6 trillion won ($157.5 billion), up 12.5%.

The sharpest upward earnings revisions over that period came in energy, up 80.5%; trading companies and capital goods, up 78.6%; nonferrous metals and wood, up 57.4%; securities, up 32.3%; and IT hardware, up 30.0%. Na said investors should keep core positions in existing market leaders such as semiconductors and power equipment, while broadening portfolios to high-quality names in sectors where earnings upgrades are beginning in earnest.

Lee Kyung-min, an analyst at Daishin Securities, said a phase of steep earnings growth led by semiconductors and valuation normalization based on those gains is unfolding. Despite the Kospi's run to fresh records, its forward price-to-earnings ratio is only 7.66 times.

A PER of 8 times implies 7,822 points and 9 times implies 8,800 points, Lee said. While short-term swings should be expected, valuation normalization alone leaves room for the Kospi to rise into the upper-8,000 range.

Lee also said sector rotation is set to continue. After the sharp rally early in the month, the semiconductor surge cooled during recent fluctuations in the Kospi, paving the way for rotation. Software and pharmaceutical-biotech shares, in particular, could attempt a rebound if bond yields stabilize, supported by price and valuation appeal relative to earnings.

After earnings season, the next catalyst for further gains will hinge on whether inflation stabilizes. The U.S. is due to release April core consumer price index data on May 12. The consensus forecast calls for core CPI to rise 2.7% from a year earlier.

Kim Yu-mi, an analyst at Kiwoom Securities, said financial markets have already priced in much of the risk that progress in slowing U.S. inflation may be delayed. If the CPI reading does not come in far above market expectations, the negative impact on financial markets will likely be limited.

Investors are also watching the U.S.-China summit scheduled for May 14 and May 15. Kim said it will be the first summit since the launch of President Donald Trump's second administration, making it a venue for strategic negotiations spanning trade, technology and security issues.

Differences between the two countries over the Middle East, including Iran, and their respective response strategies may also be discussed, Kim added. The outcome of the talks could also affect risk appetite in financial markets.

Lee Su, Hankyung.com reporter 2su@hankyung.com