Solid earnings by companies and a gradual recovery of the local economy, thanks to the vaccination campaign in the works following President Moon Jae-in’s summit with U.S. President Joe Biden, were cited as the core factors. The effects of potential valuation correction of the stocks, due to a possible shift of changes in the global monetary policies, are also expected to be limited, due to strong corporate business performances and expected profits.
“The KOSPI forecast of 3,700 points, in the best-case scenario, during the second half of the year, comes out as calculating into the average 10 percent of the discount rate of stocks’ valuations. These valuations took place during the past global tapering period, under the assumption that this year’s profit improvement rate will continue as it has been,” Kim Sang-ho, an analyst at Shinhan Financial Investment, said. He added that better-than-expected corporate earnings for the current quarter could offset any estimated negative impacts from the change of global monetary policies.
In addition, U.S. markets’ expected recovery, in terms of consumption during the second half, with the country’s vaccination program complete, would also be expected to increase short-term demand in the global economy a lot, allowing Korean stocks to enjoy the effect as well.
Plus, JPMorgan recently adjusted its annual KOSPI performance prospects from its earlier number of 3,200 points, predicted back in December, to 3,500 points. Goldman Sachs also presented 3,700 as its updated target, from its previous forecast level of 3,200 points.
“Although global stock markets’ general upward movement throughout the second half sounds valid, the stocks of both Korea and the U.S. will stop seeing their price-to-earnings ratios (PER) rise further, as each country’s monetary policies cannot be significantly extended from the current levels,” Huh Jae-hwan, an analyst at Eugene Investment & Securities, said.