Global investment bank JPMorgan raised its KOSPI target once again. It projected that in a bull market the index could rise to 7,500 points.
JPMorgan on the 3rd released a "Korea equity strategy" report and said it is raising the KOSPI index's base and bull scenario targets to 6,000 and 7,500, respectively.
Regarding the Korean stock market, JPMorgan said it "posted the highest performance among major markets worldwide last year" and noted it "is also off to a strong start this year."
It added that after reexamining the market's drivers for the KOSPI index, which topped 5,000 points last week, it judged there is ample basis to maintain a positive view.
JPMorgan estimated that since September last year, about 60% of the KOSPI's gains were led by Samsung Electronics and SK hynix. It said this was due to memory prices surging as memory chip supply tightened since early September. It assessed that this trend is continuing now.
JPMorgan also said the market's upward momentum is not limited to Samsung Electronics and SK hynix. "From a global perspective, U.S. policy remains supportive of equities, and given that this year is an election year and the 250th anniversary of U.S. independence, this stance is likely to be maintained," it explained.
Domestically, it viewed that outside memory, earnings per share (EPS) growth of more than 20% is continuing in medium- to long-term industrial growth areas such as defense, shipbuilding, and power equipment.
JPMorgan said that over the past six months, this year's EPS consensus for Morgan Stanley Capital International (MSCI) Korea has been revised up by 60%. By sector, technology rose 130% and industrials 25%.
It also estimated that this year's EPS for Samsung Electronics and SK hynix could exceed the current consensus by up to 40%. It added that the two stocks have an additional upside of 45% to 50% from current levels based on their target prices.
It also gave a positive assessment of flows. JPMorgan interpreted the fact that the KOSPI index has more than doubled since mid-April last year without a dominant investor group driving the rally as meaning there is substantial capacity for funds to flow in from all investor groups, including foreigners, institutions, and individuals.
JPMorgan explained, "Given that positioning by foreign or domestic (retail and institutional) investors has yet to catch up sufficiently, additional excess returns are still possible despite occasional pullbacks in an overheated phase."
For individual investors, it analyzed that the introduction of tax benefits and an increase in the share of domestic stocks held by institutional investors could be meaningful drivers.
It also viewed that a rerating due to corporate governance reform could act as a catalyst. JPMorgan said, "Most of the legislative work related to (corporate governance reform) is in the final stages, and going forward it will derive real impact from rigorous enforcement and continuous supervision," adding, "In the long term this is expected to lead to a shift in perception among corporations and investors."
JPMorgan maintained an overweight view on the semiconductor sector and presented defense, shipbuilding, power equipment, construction (E&C), Robotics, and other medium- to long-term industry themes, as well as holding companies and financials that benefit from corporate governance reform, as long-term core preferred areas.
It added, "Regionally, Korea remains our top overweight (OW) market in the region," and explained, "Regional outperform phases tend to last up to an average of seven years, and Korea is currently less than one year into this cycle."