As worries grow over a peak-out in the semiconductor cycle, analysts said Korea's stock market has already passed the bottom and now is the time to increase exposure to leading AI and semiconductor stocks.
On the 13th, Kim Yong-gu, a researcher at Yuanta Securities Korea, said in a report that "the market, which had groaned under extreme volatility in prices and supply-demand, has now passed the true bottom," adding, "While it is necessary to be wary of latent uncertainties, at current price levels it is advantageous to increase weights in the market and strategic alternatives."
Kim assessed the current KOSPI valuation as a historically rare undervalued zone. As of the close on the 10th, the KOSPI 12-month forward price-earnings ratio (PER) was 6.8 times, approaching the statistically oversold level of "-2 standard deviations." He said this is the second-lowest level since October 2008, during the global financial crisis.
Kim said, "A current PER of 6.8 times is a price level that is hard to justify unless the worst system risk materializes beyond a global recession," adding, "In past periods when PER was below -2 standard deviations, the KOSPI posted positive returns after 4, 13, 26 and 52 weeks."
He also judged the recent pullback to be excessive. Since the end of last month, the KOSPI has fallen about 20%, dropping to the maximum drawdown levels seen in major crisis phases such as the global financial crisis, the U.S. credit rating downgrade and the U.S.-China trade dispute.
Kim analyzed that "the market's temporary and irrational overreaction is likely to subside around the KOSPI 7,300 level."
However, he projected a boxed range market to continue for the time being even after a rebound. He assessed that for the KOSPI to break above its previous high again, improvements in the macro environment—such as U.S. inflation stabilization, an easing of the Federal Reserve's tightening and a decline in market interest rates—are needed.
In particular, he cited U.S. inflation data to be released in Aug.–Sep. as the key variable that will determine the future direction of the stock market.
For investment strategy, he put top priority on leading AI and semiconductor stocks.
Kim said, "In the process of passing the true bottom of the current boxed range, a strategy focusing on leading names in the AI and semiconductor value chain is the most effective," listing Samsung Electronics, SK hynix, Samsung Electro-Mechanics, Doosan, HANMI Semiconductor, LG Innotek, ISU Petasys and Daeduck Electronics as key stocks to watch.
He also picked semiconductor materials, parts and equipment names that had large declines as rebound candidates. He said, "After a market plunge, normalization usually starts with the most oversold names," highlighting LEENO Industrial, PSK, EO Technics, Eugene Technology, ISC, TSE, TOKAI CARBON KOREA, Koh Young Technology, KoMiCo, RFHIC and Hana Materials as promising stocks.
Kim said, "If easing inflation worries at home and abroad and stable interest rates continue into the fourth quarter, the stock market could enter a Santa rally phase," adding, "Within the boxed range, a strategy of increasing weights centered on leading AI and semiconductor stocks is effective."