There is a saying in Yeouido. The South Korean securities market is said to perform better in odd-numbered years than in even-numbered years. To get straight to the point, voices are increasingly emerging in the securities industry that this story will continue to hold true next year.
Let’s look back from this year, which was an even-numbered year. The KOSPI index started at 2,645.47 points on Jan. 2 and was doing well in the first half of the year. Thanks to the government's value-up project, it even aimed for 3,000 points for a time.
However, the situation changed in the second half of the year. High exchange rates and high interest rates continued, and the semiconductor stocks that had led the securities market began to show weakness. In August, the index experienced a 'Black Monday' with a drop of about 9% in a single day, and this month, due to the impact of the state of emergency, it recorded a new low of 2,360.18 points on the 9th. If the index remains around 2,400 points until the end of the year, it will close the year nearly 10% lower than at the beginning.
So, what about next year, which is an odd-numbered year? First of all, the saying has some basis. Except for 2011, the index has risen in every odd-numbered year since 2000. While it hasn't fallen every even-numbered year, it decreased in more than half of the instances—7 out of 13.
Looking specifically at relatively recent poor years, 2018 and 2022, the index recorded a decrease of 17% in 2018 and 25% in 2022. However, the following years were different. In 2019 and 2023, the index rebounded by 7.7% and 18.7%, respectively.
According to Hana Securities, the notable features of the successful technical rebounds in 2019 and 2023 can be summed up in three main points. First, stocks in the semiconductor and automotive sectors rose significantly compared to market conditions. Additionally, both institutional and foreign investors recorded net buying. There was also a conviction that the earnings had hit rock bottom that year.
The results in 2019 and 2023 were not particularly good. The operating profit (OP) growth rates for 2019 and 2023 were -29% and -21%, respectively. There was a disconnect from early-year estimates of 33% and 21%, yet despite this, the stock prices increased due to what is commonly referred to in Yeouido as the magic word, "anticipation.” Investors believed that the bottom had been reached, even if the results were poor in 2019 and 2023.
Next year's operating profit (OP) growth rate is projected at about 21%, but many believe it will actually fall short of this. This means that the idea of an earnings low point could spread throughout next year.
The remaining factors are the semiconductor and automotive sectors, as well as institutional and foreign investor dynamics. As the sell-off in the semiconductor sector by foreign investors slows down and signals of stabilization in the won-U.S. dollar exchange rate become clearer, the likelihood of a technical rebound in the market increases.
However, what should be done if this is not the case? Lee Kyung-soo, a researcher at Hana Securities, noted, "A method suitable for an alpha strategy that steadily outperforms market returns, such as high dividends, undervaluation, and upward profit revisions, is effective. In January, it will be important to focus not only on undervaluation but also on sectors with excessive declines and upward earnings revisions, known as quality factors."