Global banks see room for growth with Kospi

As the country’s benchmark Kospi rallies to historic highs, major international financial institutions predicted there is more room for the main bourse to climb.

Five global banks - UBS, Nomura, Citibank, Credit Suisse and Bank of America Merrill Lynch - recommended investors expand the proportion of Kospi-listed stocks in their portfolio, Korea Center for International Finance, a local think tank, said on Tuesday.

JP Morgan and Goldman Sachs were also optimistic, upgrading their rating to “neutral” from previous advice to reduce Kospi holdings.

Kospi has closed three consecutive days at new highs, topping the psychologically important threshold of 2,300.

The index ended at 2,317.34 on Wednesday, up 0.24 percent from the previous day.

The think tank attributed the changes to higher expectations with the new Moon Jae-in administration. Domestic political uncertainties eased amid the power abuse scandal involving former president Park Geun-hye and her confidante Choi Soon-sil.

“The inauguration of the new president and global economic recovery contributed to the positive prospects,” read a report by the Korea Center for International Finance.

Four companies - Goldman Sachs, UBS, Nomura and Citibank - pumped up their target indexes for Kospi after Moon took office.

The boldest revision came from Nomura, which expects Kospi to rally up to 2,600, a marked difference from its previous estimate of 2,250.

Goldman Sachs and UBS reported identical revisions from 2,200 to 2,450 while Citi increased the target index range from 1,900-2,200 to 2,200-2,600.

Amid a honeymoon with the new administration, the think tank also cited strong corporate earnings, hitherto discounted valuations of Kospi and a higher dividend ratio.

And yet the report warned investors from a rosy outlook due to lingering negative factors that include geopolitical risks with North Korea’s nuclear and missile threats, rising household debt levels and protectionist trading sentiment under Donald Trump’s administration.

The think tank also noted that the proportion of foreign investors continues to expand.

Despite the rally, statistics showed that retail investors are on the losing side and aren’t profiting from the recent upswing in the market.

Retail investors’ shares rose 3 percent from Jan. 2 to May 17, while foreign investors’ rose 19.9 percent and local institutional investor shares jumped 21.3 percent, according to the Korea Exchange on Monday.

This is not the first time that the retail investors were the losers in the market.

Since 2005, when the Korea Exchange started to compile the data in its current form, retail investors’ profits have never exceeded those of foreign investors.

When compared to the local institutional investors, retail investors only beat them just two times, in 2010 and 2013.

“Retail investors tend to invest on companies that are very volatile or those saw their share prices plunge,” said Lee Hyo-sup, a researcher at Korea Capital Market Institute. “Many people invest with vague expectations and hopes instead of companies’ performances. Such shares don’t go up that often.”

BY PARK EUN-JEE, KIM YOUNG-NAM [park.eunjee@joongang.co.kr]