"If share buybacks and cancellations are made mandatory and only the undervaluation of the Korean stock market versus other emerging markets is resolved, the KOSPI index can top 5,000 points."
Mok Dae-gyun, CEO of KCGI Asset Management, said confidently in a recent interview with ChosunBiz that the stock market in the new year will be stronger than last year. He said three drivers—the semiconductor supercycle now leading the market trend, the capital goods investment cycle unfolding in the United States, and the Korean government's value-up program—are combining to propel the market powerfully higher.
Mok said, "When the new administration set 'KOSPI 5000' as a goal last year, the domestic market's price-to-book ratio (PBR) was 1 time, while emerging markets like Taiwan had a PBR of 1.5 times," adding, "If the undervalued Korean market's PBR is re-rated, even just share buybacks and cancellations alone leave room for gains. A KOSPI index break above 5,000 is easier than you think."
After graduating from the business administration department at Seoul National University, Mok served as head of the global investment division at Mirae Asset Global Investments and then as CEO of K-Global Asset Management in 2020. In 2023, he moved to KCGI Asset Management to serve as CEO.
A Q&A with Mok.
—What is the most important condition for a continued stock market boom?
"First, the AI investment cycle needs to continue. And the AI investment cycle must spread beyond data centers to other areas such as power facilities. It is also important that the government's value-up program continues steadily. Lastly, exchange rate stability that can give foreign investors confidence is necessary. Only in such an environment can KOSPI 5000 be realized."
—What trend do you expect in the domestic stock market in the new year?
"AI, which led the market last year, will likely continue to drive gains. I think its scope could even expand. Previously, stocks laying AI-related infrastructure—namely data centers and power equipment—drew attention; now we can move into a phase extending to software that uses AI and even physical AI. In particular, interest may grow in corporations that generate profits by leveraging software. Companies like Naver and Kakao are representative."
—Which corporations or sectors should we watch in the new year?
"The advice to increase exposure to large-cap semiconductor stocks related to AI, such as Samsung Electronics and SK hynix, remains unchanged. I would also say pay attention to autos. Valuations are low. The tariff risk has eased, and hybrid car sales are increasing. Sales are strong in emerging markets such as India. In the case of Hyundai Motor, it is developing businesses related to Autonomous Driving and robots, which also merits attention."
—Profits in the semiconductor sector are surging, but concerns about an AI bubble are also growing.
"The current AI rally could be a bubble. But if you conclude the situation is overheated and cut exposure now, you're throwing away a good investment opportunity.
Let's assume you run a restaurant. Suppose business is good and you have 30 times more customers than last year. To accommodate the growing number of customers, you need to expand the restaurant. To scale up right away, you have to take out loans, which means profits may not increase immediately even as customers grow. You don't know when the long line of waiting customers will disappear, and there are a few competing restaurants serving similar menus. Then what do you do? Considering profitability, do you step back from this fight, or do you expand boldly?
Big tech leading the AI industry faces this dilemma. Many people are waiting to use AI, and demand for AI is bound to grow further. So far, only text-based AI has been used, but the stages will inevitably evolve to video and audio AI, and then to physical AI. From big tech's perspective, if they lose this investment race and fail to capture demand, they can only think that their corporations will disappear.
There are risks, however. As big tech's investment cycle accelerates, free cash flow has failed to keep up. As a result, they have started raising capital on long-term terms of 30 to 40 years. Interest rates are high as a result. That is why Wall Street worries about whether big tech can repay. The widening of Oracle's credit default swap (CDS) spread and the surge in AI bubble concerns came in this context."
—What else worries you in the market, including the AI bubble concerns?
"It's that volatility could be very high. The KOSPI index is at a record high. If the domestic market is not re-rated in the new year, investors' desire to take profits will inevitably grow.
Another problem is the exchange rate (won weakness). Foreign capital plays the role of "fuel" that can fan the flames in our market, and the most important factor when foreign funds try to enter is exchange rate stability. There is no reason for foreigners to invest domestically while taking FX losses. If the weak-won trend continues, foreigners are likely to cut their losses and eventually leave."
—Last year the KOSPI index rose 75%, but the KOSDAQ index lagged behind.
"Since the second half of last year, the KOSDAQ market's transaction value and margin balances have risen sharply. However, the leading stocks that could drive the KOSDAQ were not strong. In the KOSDAQ market, bio, secondary batteries, and robots carry large weightings, but their earnings visibility is weak. There is directionality, but over the long term it may take time to make this concrete.
Compared to fundamentals, valuations are expensive, so investors are cautious. I am still not convinced whether the corporations that lead KOSDAQ can show visibility persuasive enough to win over investors.
That said, there are positives as transaction value and margin balances are growing now and the government is pursuing various policies, including recent investments in KOSDAQ venture funds."
—What strategy do you recommend to investors this year?
"There are many variables that can make the market choppy, so pullbacks may be frequent. Don't be rattled by corrections; check whether the long-term uptrend remains intact, and if the structure hasn't changed, buying the dips doesn't look like a bad strategy."