On Apr. 27–30, the KOSPI index set a record high day after day, and attention is focused on whether the index can break through the 7,000 mark for the first time this week (May 4–8). With the U.S. benchmark interest rate on hold and U.S.-Iran talks stuck in a stalemate, some analysts said the index will need earnings improvement by corporations to take it to the next level.
Last week, the KOSPI index rose on expectations for an expansion of the artificial intelligence (AI) value chain and on the strength of major listed companies' earnings surprises, even as negotiations between the United States and Iran dragged on. However, just before the holidays, U.S.-Iran tensions reignited, oil prices hit a record high in four years, and the U.S. Federal Reserve showed a somewhat hawkish tone, causing the index to pull back on the 30th.
The outlook is that the KOSPI index will continue its upward trend this week as well. As global corporations keep expanding investment with the growth of the AI ecosystem and listed companies post strong results, an earnings-driven market is continuing.
However, if high oil prices stemming from U.S.-Iran tensions and related tightening concerns expand, the index's rally could be checked.
Lee Eun-taek, an analyst at KB Securities, said, "As the feasibility of artificial general intelligence (AGI) has been confirmed through scaling laws, AI investment has entered a domain where it cannot stop on its own," adding, "Accordingly, the trend of rising semiconductor demand and earnings improvement is highly likely to continue."
Still, Lee noted, "As the pace of capital expenditure (CAPEX) growth pressures the pace of free cash flow growth, AI investment is increasingly relying on external financing such as corporate bonds and private credit," and explained, "If high oil prices persist, they could spur the possibility of tightening and increase stock market volatility."
It is advisable to assess the macro environment through major economic indicators released this week. On the 1st, the April ISM manufacturing index; on the 5th, the March trade balance and the Job Openings and Labor Turnover Survey (JOLTS); and on the 8th, April nonfarm payrolls will be released. Key points to watch are whether input expense pressures continue amid Middle East risks and whether the labor market remains stable without overheating.
Brokerages are projecting the KOSPI's central value at the 7,200 level in May. Noh, an analyst, explained, "Assuming a price-to-book ratio (PBR) re-rating in line with the normalization of the return on equity (ROE) for Samsung Electronics and SK hynix, their contributions to index gains could be 6.6 percentage points and 2.1 percentage points, respectively," adding, "An increase of about 8.8% from the current index level would make reaching 7,200 possible."
Some also analyze that, given the sharp rally so far, profit-taking could emerge this month. Byun Jun-ho, an analyst at IBK Securities, said, "The KOSPI's monthly change in April was 31%, the highest since January 1998," and explained, "Even though the Iran situation has not been clearly resolved, the index rose sharply on hopes for a resolution and the first-quarter earnings season. As it nears 7,000 points, the desire for short-term profit-taking could be strong in early May."
However, he projected that the uptrend would persist as the latter half of May progresses. Byun said, "Because the stock reaction to the strong first-quarter earnings upturn typically links to full-year earnings expectations, it weakens the case for profit-taking in May," adding, "There has never been a case where the KOSPI fell in May in years when it surged more than 5% in April." He said the inauguration of Kevin Warsh as U.S. Fed chair in the second half and Nvidia's earnings release could align to lift the market later in the month.
This week will also see a concentration of first-quarter earnings releases by major domestic corporations. If corporations post strong results, it could fuel stock gains. On the 5th, Samsung SDI and Hyundai Engineering & Construction; on the 6th, KakaoBank, Hanwha, SM Entertainment; on the 7th, Korea Aerospace Industries (KAI), LIG D&A, APR, Kakao, CJ ENM; and on the 8th, Kolmar Korea, PharmaResearch, and Kolon Industries will release results.