SCB CIO sees signs of recovery in the South Korean stock market and export sector, bolstering expectations for economic growth. GDP is projected to expand by 2.2% in 2024-2025, compared to 1.4% in 2023. Four factors support this outlook: 1) Increasing semiconductor sales driving up earnings per share; 2) Low valuation levels; 3) Positive effects of policies aimed at enhancing company value, including special tax privileges, boosting investor confidence; 4) Return of foreign investors, with approximately 14 billion USD invested since November 2023. SCB CIO holds a Slightly Positive view and recommends gradual investment aligned with individual risk tolerance and proportions.
Dr. Kampon Adireksombat, First Senior Vice President and Head of SCB
CIO office at Siam Commercial Bank, highlights the compelling prospects for the
South Korean stock market amid its recovering export cycle. This resurgence has
spurred renewed economic growth in South Korea. Analysts surveyed by Bloomberg
Consensus anticipate a 2.2% expansion in South Korean GDP for 2024-2025, aligning
with SCB CIO’s optimism that this year will witness superior growth compared to
the 1.4% recorded in 2023. Additionally, the Bank of Korea (BOK) foresees
general inflation reaching 2.6% this year, surpassing the long-term target of
2%. It is anticipated that the BOK will likely maintain the policy interest
rate at the current 3.5% level and may initiate interest rate reductions in the
latter half of the year.
Examining the composition of the South Korean
Stock Market Index (KOSPI) reveals electronics stocks dominate the index,
constituting approximately 39% of its weight, with Samsung Electronics alone
accounting for 20%. Furthermore, when factoring in stocks from large
conglomerates (Chaebols), these entities collectively represent around 60% of
the index. Notably, retail investors comprise a significant majority,
contributing to 66% of market trading volume, indicating substantial
participation from smaller investors.
SCB CIO sees significant appeal in the South Korean
stock market for investment, backed by four key factors: 1) Earnings per share
(EPS) growth in 2024 is poised for an upswing, propelled by robust performance
in the electronics sector, a major constituent of the index. This resurgence
follows a recovery in South Korean exports and burgeoning semiconductor sales; 2)
The market remains attractively valued, with the price-to-earnings ratio (12M
Forward P/E) of KOSPI standing at 10.6 times, or -0.3 standard deviations from
the 5-year average. Additionally, the price-to-book value (P/BV) is at 0.89
times, or -0.4 standard deviations from the 5-year average; 3) The benefits of
the Corporate Value Up policy, though voluntary, are noteworthy. Special tax
privileges associated with this initiative are anticipated to be most
advantageous for undervalued stocks. Share repurchases and increased dividends
are underway, bolstering investor sentiment; and 4) Foreign investors have
resumed net buying on the KOSPI index since November 2023, with approximately
14 billion USD in net purchases, marking the highest influx since the same
period in 2021.
Despite these positive indicators, certain
risks persist. These include the possibility of major trading partners
experiencing lower-than-expected economic growth, particularly concerning for
South Korea given its heavy reliance on exports to key partners such as China,
the United States, and Vietnam. Additionally, the upcoming general election in
South Korea on April 10, 2024, could introduce policy uncertainties,
potentially impacting listed company valuations and market volatility.
Nevertheless, with the scales tipping in favor
of positive factors, SCB CIO maintains a slightly positive outlook and suggests
a gradual approach to investing in the South Korean stock market. SCB CIO recommends
that investors consider an Opportunistic Portfolio, capitalizing on the
anticipated surge in listed company profits in 2024 amid economic recovery and
semiconductor industry dynamics. Moreover, the ongoing policy measures to
enhance company value are likely to foster increased investor confidence.
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