Kospi Nears 8,000, but Strategists Say South Korean Stocks Are Still Undervalued

Strategists say stock prices still lag earnings

South Korea’s Kospi has surged to the brink of 8,000 just three trading days after topping 7,000. Even so, research heads at major domestic brokerages say stock prices still have not caught up with earnings growth.

Yonhap News reported on May 11 that research chiefs at leading firms including Meritz Securities Co., IBK Investment & Securities Co. and Hanwha Investment & Securities Co. expect the earnings rerating led by semiconductor shares to continue for the time being. They also said expectations for further gains in chip stocks should hold through at least June and July, even when domestic and overseas political events are factored in.

Some research heads, however, said investors should keep the possibility of a correction after August in mind, citing rising pressure for profit-taking after the market’s sharp short-term rally.

Lee Jin-woo, head of research at Meritz Securities, said the main force behind the South Korean stock market’s advance is an earnings rerating centered on semiconductors. The Kospi’s 12-month forward price-to-earnings ratio remains near its lowest level since the global financial crisis, showing that share prices are still lagging the pace of earnings improvement.

In the near term, the market is in a relief-rally or overshooting phase, he said. By year-end, the index may attempt to break above 9,000 as it gradually prices in 2027 net profit estimates in the 800 trillion won range.

Lee also said the semiconductor industry’s peak is likely to come after 2028, citing a deepening AI-driven chip shortage. He added that leadership from AI infrastructure-related sectors, including power infrastructure, electrical and electronics, and telecommunications equipment, remains intact.

Lee Seung-hoon, head of research at IBK Investment & Securities, said the current strength in semiconductor stocks such as SK Hynix Inc. and Samsung Electronics Co. reflects surging exports and earnings. He said the boom through the first half of this year and corporate earnings should be reflected further in share prices.

A strategy of staying with favorable market conditions remains valid through the June-July summer rally, when expectations for second-quarter earnings should hold up, he said. After August, however, profit-taking may emerge if momentum in economic and earnings indicators starts to cool.

He also said investors should be mindful of the potential for a pullback after the summer rally. Stock markets have often fallen ahead of US midterm elections because investors sought to avoid uncertainty, including before the Nov. 3 vote.

Park Young-hoon, head of research at Hanwha Investment & Securities, said he expects the Kospi to reach 8,000 and argued that structural growth in semiconductors remains intact despite some concerns over a sector peak. At the stock level, some pullback is possible after the recent concentration in gains, making a buy-on-dips strategy more appropriate than adding exposure at current levels, he said.

Beyond semiconductors, Park said investors should pay attention to AI-related robotics and automakers, as well as defense, shipbuilding and bank shares that could benefit from the value-up drive.

Kim So-yeon, Hankyung.com reporter sue123@hankyung.com