Not long ago, the saying 'exiting the Korean stock market is a sign of intelligence' seemed prevalent, but it has now changed to 'returning to the Korean stock market is a sign of intelligence.' The KOSPI index has reached a peak, and the KOSDAQ index has been on an upward trend for three consecutive trading days recently.
Several factors are cited as the background for the rise. Whether viewed through price-to-earnings ratio (PER; market capitalization ÷ net income) or price-to-book ratio (PBR; market capitalization ÷ net worth), as well as expected earnings per share (EPS), the Korean securities market has remained at a low point. Political uncertainty has been alleviated by the presidential election, and there are high expectations for economic stimulus measures in the second half of this year.
The possibility of foreign funds inflowing due to the strengthening of the won is also a factor boosting the Korean securities market. The won-dollar exchange rate fell from the 1430 won range at the end of April to the current 1370 won range. Global investment bank Goldman Sachs forecasts that the won-dollar exchange rate will drop to the 1340 won range by the end of this year, adjusting its previous estimate (1365 won) down by 25 won.
Goldman Sachs assessed that factors encouraging the strength of the won are increasing. There are ongoing foreign exchange discussions between Korea and the United States, the possibility of movements linked to the strengthening of the Chinese yuan, and the fact that the National Pension Service has expanded its strategic foreign exchange hedge, suggesting that the Korean government may accommodate a stronger won.
If the strength of the won continues, both local investors (referred to as 'Donghak ants') and foreign investors (referred to as 'Seohak ants') will need to reconsider their strategies. Securities firms advised to focus on sectors favoring the strength of the won, such as airlines, travel, and retail in the domestic market. Conversely, the need to carefully assess profitability in export sectors has become more significant on a corporate basis.
Foreign investors need to keep potential currency losses in mind. Global investment banks anticipate that the Standard & Poor's (S&P) 500 index will record around 6100 by the end of this year. Based on the current index, there is about a 3% upward potential, which only offsets the decline in the won-dollar exchange rate.
Of course, there are still many obstacles on the path to a stronger won. If the Bank of Korea's Monetary Policy Committee cuts the base rate further as expected by the market on the 29th, the interest rate gap between Korea and the United States will widen. The tariff negotiations being pushed by the Donald Trump administration are also expected to intensify after the presidential election.
Ultimately, the proverb to reflect on at this point may not be about exiting or returning to the Korean stock market, but rather, 'don't put all your eggs in one basket.'