'Record-breaking rally' South Korean stock market ranks first in returns among major countries

KOSPI rises for 11 consecutive trading days…breaks above the 3,400 level

Expectations grow for the resolution of the 'Korea discount'

The South Korean stock market has recorded the highest increase among major global stock indices so far this month.

According to Yonhap Infomax on the 17th, from the 1st to the 15th of this month, the KOSDAQ index rose 7.00% and the KOSPI index rose 6.95%, ranking first and second respectively. This is the steepest rise among 40 representative global indices including the U.S., Japan, and China.

The KOSPI continued an 11-trading-day winning streak from the 2nd to the 16th and surpassed the 3,400 level for the first time on the 15th. On the 16th, it even climbed above the 3,450 level intraday, showing an unstoppable rally.

The rally in the domestic stock market was driven by large-scale buying by foreign investors. From the start of this month through the 16th, foreigners were net buyers of 6.6281 trillion won in the KOSPI market and 87.4 billion won in the KOSDAQ market. Over the same period, individual investors were net sellers of 9.2613 trillion won and 167.4 billion won, respectively.

Securities firms interpreted that global expectations for interest rate cuts were spreading and that Korea's policy momentum contributed to the index's strength.

The government decided to maintain the current major shareholder threshold for capital gains tax at 5 billion won, and discussions in the political sphere over amendments to the Commercial Act focusing on mandatory treasury stock cancellation have begun in earnest, raising expectations for the resolution of the 'Korea discount' (the undervaluation of the Korean stock market).

Choi Jae-won, a researcher at Kiwoom Securities, said, "Earnings outlooks are under downward pressure, but the magnitude is not as large as in past cases," and added, "Expectations for the resolution of the Korea discount driven by government policy are being reflected in the market."

He added, "Given the short-term pace of the domestic market's rise, there is a possibility that volatility could widen depending on policy direction and the path of rate cuts after the September FOMC."

However, there is also a positive view in that corporate earnings forecasts have been gradually stabilizing in the second half. Choi said, "The forward 12-month earnings outlook is expected to improve by about 5% by year-end, and if the current valuation multiple is maintained, the upward momentum from fundamental improvement is highly likely to continue."

Lee Eun-taek, a researcher at KB Securities, mentioned the 'three lows' combination of a weak dollar, low oil prices, and low interest rates, calling it "an environment that has appeared for the first time in 40 years since 1986." He predicted that domestic policies such as dividend separate taxation would further lift the Korean market. However, he warned, "Inflation is the variable that could create a future downturn, and that point is likely to be in the second half of next year."

Yu Ji-hee, Hankyung.com reporter keephee@hankyung.com