KOSPI has passed its medium-term bottom following extreme declines, according to a Yuanta Securities report released on the 13th by researcher Kim Yong-gu. The Korean stock market's 12-month forward price-to-earnings ratio (PER) dropped to 6.8x as of the 10th — the second-lowest level since the 6.5x recorded during the October 2008 global financial crisis, reaching the statistical oversold extreme of minus 2 standard deviations. Kim stated that increasing positions in artificial intelligence (AI) and semiconductor leading stocks is more advantageous at current price levels than selling due to concerns over further declines, despite near-term box-range movement expected from inflation and interest rate uncertainties.
KOSPI Forward PER Drops to 6.8x
The 12-month forward PER of 6.8x as of the 10th represents the second-lowest valuation in KOSPI history after the 6.5x recorded in October 2008 during the global financial crisis. Past performance following similar oversold levels showed average returns of 2.3% after 4 weeks, 6.6% after 13 weeks, 4.1% after 26 weeks, and 11.2% after 52 weeks. Kim assessed that the current valuation is difficult to justify as undervaluation unless the global economy falls into a crisis encompassing the entire financial, foreign exchange, and credit system beyond recession.
Market Decline Reaches 20% from Two-Year High
KOSPI's maximum decline rate from its recent two-year high expanded to approximately 20% during the late June to early July plunge. This decline magnitude is similar to the drops observed during the 2011 U.S. credit rating downgrade, 2012 European fiscal crisis, 2013 taper tantrum, and 2019 U.S.-China trade dispute. Samsung Electronics and SK Hynix also recorded approximately 20% declines from their recent two-year highs, entering excessive adjustment territory in terms of price and supply-demand dynamics according to Kim's evaluation. The 14-day moving average power balance indicator for KOSPI stood at -0.20% as of the 10th, approaching the -0.25% level where selling pressure typically peaks.
Yuanta Securities Forecasts Q3 Box-Range Movement
Kim forecasted that the domestic stock market will fluctuate within a box range during Q3. He explained that for the market to transition from the current reflation phase — where economic recovery and inflation rise simultaneously — to a Goldilocks phase where both economy and inflation stabilize, signals must be confirmed in U.S. July-August inflation indicators released in August-September showing that inflation has passed its peak. Easing geopolitical instability in the Middle East and downward stabilization of international oil prices are also key factors. If oil prices stabilize and U.S. housing and employment market slowdowns lead to declines in housing costs and service inflation, concerns over Federal Reserve rate hikes could weaken in Q4 and market interest rates could fall. Based on this scenario, Kim placed weight on the possibility of a year-end Santa rally in domestic and overseas stock markets.
Kim Recommends Samsung Electronics and SK Hynix
Kim presented semiconductors, IT hardware, and machinery as priority sectors to accumulate at the bottom of the box range. These sectors are high-quality growth stocks capable of continuing earnings growth despite high inflation and interest rates, and have outperformed KOSPI in both reflation and Goldilocks phases. Specific stock recommendations include Samsung Electronics, SK Hynix, Samsung Electro-Mechanics, Doosan, Hanmi Semiconductor, LG Innotek, ISU Petasys, and Daeduck Electronics as major AI and semiconductor value chain representatives. Kim emphasized that concentrating on AI and semiconductor leading stocks during the market's true bottom passage is the top priority for investment strategy, and that the status of existing leading stocks has not changed. For KOSDAQ, Kim highlighted semiconductor materials, parts, and equipment stocks expected to be included in the KOSDAQ Premium Index scheduled to launch in September. Candidates presented include Lino Industrial, PSK, IO Technics, Eugene Technology, ISC, TSE, TCK, Koh Young, Komico, RFHIC, and Hana Materials, with the assessment that policy expectations, stock price recovery, and supply inflows could appear simultaneously around the index launch.
FAQ
What is KOSPI's current forward PER and how does it compare historically?
KOSPI's 12-month forward PER stood at 6.8x as of the 10th, marking the second-lowest level in history after the 6.5x recorded during the October 2008 global financial crisis.
Which stocks did Yuanta Securities recommend for Korean stock investors?
Yuanta Securities researcher Kim Yong-gu recommended AI and semiconductor value chain stocks including Samsung Electronics, SK Hynix, Samsung Electro-Mechanics, Doosan, Hanmi Semiconductor, LG Innotek, ISU Petasys, and Daeduck Electronics as major investment alternatives.
