Kospi enters bull market but experts concerned over long-term momentum

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Kospi enters bull market but experts concerned over long-term momentum

Published: 12 Jun. 2023, 18:37

A screen in Hana Bank's trading room in central Seoul shows the Kospi closing at 2,641.16 on Friday, the first time for the main bourse to finish above the 2,640 mark since June 3 last year. [YONHAP]

The Kospi entered a new bull market as the benchmark index now rallies 20 percent off the recent lows in September of last year. But with only large-cap stocks spearheading the climb, experts are raising concerns over long-term momentum.

Korea’s main bourse closed at 2,641.16 points on Friday to reach the highest point in a year, 22.5 percent above the recent low of 2,155.49 on Sept. 30. It surpassed the significant threshold of 2,600 on June 2, returning to the territory after 12 months on optimism over the Fed’s possible rate hike pause.

The commonly accepted definition of a bull market is when stock prices are 20 percent above a low point. In contrast, a bear market begins when stocks fall 20 percent below a recent high.

“The Kospi made a technical turnaround into a bull market on the back of strong semiconductor and storage battery,” said Seol Tae-hyun, a DB Financial Investment analyst. “Hopes for a break in U.S. rate hikes and eased woes over the economic slump played roles [for the rise].”

The recent rally was prompted by the rise in large-cap stocks. The Kospi 200 Index, which consists of Kospi’s 200 largest companies that make up 93 percent of the stock exchange, rose 19 percent so far this year. The Kospi as a whole rose 18.1 percent.

The rise was sharper at the tip of the spear, with the Kospi 200 Top 10 Index having risen 23.3 percent as of Monday.

Market Bellwether Samsung Electronics jumped 27.9 percent, and the second largest market cap LG Energy Solution soared 37.2 percent over the same period, fueled by the strong storage battery market. All top 10 stocks, except for Samsung Biologics, have advanced over 10 percent since January.

Stock growth relatively plateaus when large caps are taken out of the equation. Small and medium-cap constituents of the Kospi 200 rose 13.9 percent this year, falling behind the market returns. The Kospi 200, excluding Samsung Electronics, moved up 15.4 percent, attesting to the tech giant’s weight on the market.

On the tech-heavy Kosdaq, the top 100 cap stocks spiked 45 percent this year, whereas medium-caps (101 to 400) ascended 21.8 percent and small-caps (below 400) inched up 21.7 percent.

Experts warn that the bullish market can turn bearish on short notice if warped growth continues.

“The fact that the index’s rise is unfolding in a confined manner around certain sectors is a risk for the stock market,” said Park So-yeon, chief strategist at Shinyoung Securities. “Considering the pressure over the weakening won due to mounting trade deficits and the [investment] concentrating on storage battery and semiconductor stocks, the stock market is unlikely to rise on momentum.”

The distortion is subject to rectification in order for foreign buying, a major driving force boosting the Kospi, to last longer as well.

“Foreign buying will intensify on [foreign investors’] belief that other sectors, aside from semiconductors and electronic technology, are attractive,” said Park Sang-hyun, an analyst at HI Investment & Securities.

“An economic recovery, especially on exports in the second half of this year, needs to be confirmed for that,” Park added.

BY JANG WON-SEOK [sohn.dongjoo@joongang.co.kr]