The KOSPI index has finally reached the 3000 mark. This is the first time it has happened in 3 years and 6 months based on the closing price since December 2021. The KOSPI index, which started at 2903.5 last week (June 16-20), closed at 3021.84. During the same period, the KOSDAQ index also jumped from 767.64 to 791.53. It is nearing the 800 mark, which it has not surpassed since July of last year.
According to the Korea Exchange, during the bull market in 2021, individual investors flocked to the market through the so-called 'Donghak Ant Movement,' while this year, foreign investors are driving the index up. The foreign investor proportion in transaction volume increased from 15.9% in 2021 to 31.8% this year. However, foreigners have been net selling amidst the intensifying conflict between Israel and Iran as they realized some profits.
This week (23-27), geopolitical risks in the Middle East could impact the market. U.S. President Donald Trump has given Iran a two-week deadline. Although negotiations have started amid ongoing tensions, the possibility of U.S. military involvement remains.
If geopolitical crises arise, investor sentiment towards assets in emerging countries, including Korea, is bound to weaken. Hwang Jun-ho, a researcher at Sangsangin Investment & Securities, noted that "if a new war breaks out due to active U.S. intervention, stock markets and Government Bonds interest rates will fluctuate," adding that "the preference for safe assets, including gold, could intensify."
The results of the country-specific market classification report to be released by Morgan Stanley Capital International (MSCI) on the 24th (25th a.m. Korean time) could also affect the market. There is attention on whether Korea will be included in the 'Watch List' for advanced market inclusion for the first time in 11 years since 2014. This is due to the financial authorities and the industry taking measures to improve accessibility for foreign investors, including a full resumption of short-selling.
MSCI classifies global stock markets into advanced markets, emerging markets, and frontier markets. Korea is classified as an emerging market. If included on the Watch List, Korea will undergo evaluation for one year before possibly being included in the advanced market. Since advanced markets have larger funds compared to emerging markets, additional capital inflow into the domestic stock market can be expected. Global investment bank UBS estimated that the Korean stock market could see a capital inflow of up to $25 billion (approximately 34 trillion won) if included in the advanced market.
However, MSCI previously pointed out that while it positively assessed the Korean market's institutional improvement efforts, there are still constraints for foreign investors. Yeom Dong-chan, a researcher at Korea Investment & Securities, stated that "the market accessibility evaluation did not provide a definite signal," but also mentioned that the positive assessment of Korea's institutional improvement efforts means that it is still possible to consider the country for Watch List classification.
As the first half of the year wraps up, the earnings season begins. Micron Technology in the U.S. will announce its third-quarter results for fiscal year 2025 (March to May) on the 25th (local time). Micron is the first among memory semiconductor companies to release its results, earning it the nickname "semiconductor barometer." It often impacts the stock prices of domestic giants Samsung Electronics and SK hynix, which rank 1st and 2nd by market capitalization.
The market expects that both Micron's revenue and earnings per share (EPS) will increase by more than 10% compared to the previous quarter, thanks to the recent surge in prices of the older DDR4 due to industry supply cuts, and steady demand for high-bandwidth memory (HBM), a key component for artificial intelligence (AI) chips.
Overall, domestic corporations have entered a phase of stagnant profit growth. As the U.S. prepares for significant trade negotiations, third-quarter (July to September) earnings forecasts are being set conservatively, which might create pressure.
According to researchers at Mirae Asset Securities, in the past month, industries that have seen performance forecasts rise above baseline include defense, shipbuilding, hotels and leisure, media and entertainment, and securities. Conversely, industries such as energy, information technology (IT) hardware, secondary batteries, automotive, semiconductors, and steel have seen their performance forecasts adjusted downward.
The researcher stated, "In anticipation of the earnings season, a strategy focused on industries with positive earnings momentum, rising expectations for AI policies, and sectors related to China, such as hotels and leisure, media and entertainment, could be advantageous." They also noted that "it's essential to pay attention to the KOSDAQ market, which presents relatively greater price attractiveness than the KOSPI market."