Analysts say Kospi and Kosdaq will thrive in 2018

Can the bull market keep going in 2018? Market analysts’ answer is a resounding yes, as Korean companies will probably enjoy strong corporate earnings and policy support.

In line with such optimism, both the main Kospi bourse and the bio- and tech-heavy Kosdaq closed higher on the first trading day of the new year. The Kospi rose 0.49 percent to close at 2,479.65 on Tuesday while the Kosdaq hit a 10 year high of 812.45, up 1.76 percent from the previous trading day.

In terms of prospects for the Kospi, five analysts predicted that 2018 will bring about even higher indexes than last year, which saw the market hit an all-time record of 2,557.97. Those five analysts’ projections for 2017 were largely correct.

The Kospi’s main sectors are expected to benefit from a buoyant global economy and robust demand for the country’s exported products.

“We expect that Korean companies’ profits will likely reach 150 trillion won [$141 billion] should the global economy keep growing,” said Lee Seung-jun, director at Samsung Active Asset Management.

He is predicting the Kospi to be between 2,400 and 2,800 by the end of 2018.

“The country’s stock markets remain discounted compared to other markets,” he said.

Lee Kyung-soo, head of Meritz Securities’ research center, has an even bolder prediction of 2,850 and 2,900.

“I factored in corporate valuations and the current level of the stock market,” Lee added, “I recommend IT, automobiles and cosmetics stocks.”

Besides earnings, the government’s effort to improve large conglomerates’ corporate governance and encourage dividends will translate into easing the so-called “Korea discount,” according to Choi Young-gwon, president of HI Asset Management.

“This year would not experience as steep a rise as in 2017,” said Choi, “but the Kospi will remain in a range between 2,500 and 2,800.”

Cho Yong-jun, head of research at Hana Financial Investment, projected that tech-related stocks will continue to drive the main bourse.

“Since the end of last year, information and technology stocks suffered losses amid a selling spree by foreign investors,” Cho said, “Still, the driving forces behind the bullish market will be tech and health care stocks.”

But not all predictions are so uniformly rosy.

Lee Chang-mok, head of the research department at NH Investment and Securities, cited uncertainties surrounding monetary policy, which could act as a downside risk for the markets.

The defining economic indicator will be the consumer price index, which will determine the pace of monetary tightening. The Bank of Korea raised its benchmark rate in November, citing healthy economic indices. But Gov. Lee Ju-yeol struck a cautious note on further raises.

Last year the country largely missed the central bank’s target of 2 percent inflation. The consumer price index registered 2 percent in January and picked up to 2.6 percent in August. But the rate retreated to 1.8 percent in October, dragged down by agricultural and food prices. The figure stood at 1.3 percent in November, the lowest this year.

Choi of HI cited geopolitical tensions with North Korea and other major economies’ moves to hike their key interest rates as major challenges.

BY CHO HYUN-SOOK, PARK EUN-JEE [park.eunjee@joongang.co.kr]