The KOSPI index has continued its downward trend for six months, but analysts say there is no reason to pessimistically view the market for next year. Foreign net purchases have surpassed 10 trillion won, excluding Samsung Electronics. Sector-wise, the common belief that 'small-cap stocks and growth stocks have an advantage' in a falling interest rate environment is likely to be broken, as 'value stocks' are expected to gain attention.
On the 23rd, Park So-yeon of the Shin Young Securities Research Institute noted, "When analyzing this year's foreign net buying trends, one unusual phenomenon is observed," adding that "excluding Samsung Electronics, foreign investors have actually net purchased nearly 12 trillion won in the Korean market."
As of August, foreign investors recorded a net purchase of 25 trillion won in the KOSPI market. However, after turning to net selling in September, this month's cumulative net purchase has shrunk to 1.5 trillion won. Most of this net selling is effectively attributed to the common stock of Samsung Electronics.
Since September, the amount of net selling by foreigners has totaled 19.81 trillion won, with net selling of Samsung Electronics amounting to 18.97 trillion won (about 96%). Park noted, "Excluding Samsung Electronics, it is reasonable to view that foreigners have hardly sold Korean stocks," and interpreted that "this means we should not fall into an overly pessimistic view looking ahead to 2025."
He said, "After the December meeting of the Federal Open Market Committee (FOMC), expectations for a significant rate cut by the Federal Reserve have rapidly faded," adding that "fears over universal tariffs and inflation remain." He also stated, "It is difficult to hastily forecast a favorable phase for small-cap and growth stocks."
Looking back at past movements, the period just after the collapse of the IT bubble in 2003 saw the predominance of small-cap growth stocks. This was followed by a phase dominated by value stocks until 2008, driven by a capital expenditure boom from China. Despite a zero-interest-rate environment persisting after the outbreak of the 2008 financial crisis, value stocks continued to lead from 2009 to 2011 due to consumption stimulus from China.
Starting in 2012, a full-blown deflation and interest rate cut cycle began, leading to a four-year cycle of small-cap growth stocks. The period from 2016 to 2019 saw a big-cap stock boom fueled by an economic rebound in emerging markets and a semiconductor super cycle, but the situation transformed once again with the outbreak of COVID-19 in 2020.
Park noted, "Based on the current trends, it seems comfortable to remain in value stocks by (2025)."
Regarding the reasons for this, Park stated, "Although the expectations for value enhancement have faded, it is difficult to completely disregard the corporate value enhancement plans that have already been officially announced." He added that "companies that have changed the dividend valuation date to after board resolutions in early next year are likely to maintain expectations for settlement dividends until the first quarter of next year."
The outlook for the shipbuilding sector, a representative value stock, is also bright. Park stated, "With the second term of the Trump administration expressing a willingness to cooperate with Korean shipbuilders, the likelihood of a new momentum has increased." Recently, four bipartisan lawmakers in the U.S. Congress introduced the Shipbuilding Industry Strengthening Act (SHIPS for America Act). The goal is to encourage shipbuilding in the U.S. and reduce dependency on Chinese vessels.
This law includes: ▲ the establishment of a maritime security advisor position within the White House; ▲ expanding the U.S. merchant fleet to 250 vessels within 10 years; ▲ introducing a 25% investment tax credit for shipyard investments. Park added, "If it becomes difficult to obtain U.S.-made vessels, South Korea could benefit from temporarily using foreign-built vessels or opening vessel repairs to other countries."