Will Seoul stock market overcome the 'Korea discount'?
SEOUL, Sept. 12 (UPI) — South Korea’s KOSPI rose 1.54% Friday to approach 4,000 points. The benchmark stock index broke its record for three consecutive days, gaining more than 6.5% this month.
The bullish market sparks hopes that Asia’s fourth-largest economy may finally overcome the long-standing “Korea discount,” which refers to the tendency of Korean stocks to be undervalued compared to global peers.
The KOSPI index as a whole has shown a substantially poor price-to-earnings ratio well below the level seen in similar economies. The low ratio means that the country fails to reach the stock values that it deserves.
“The Seoul administration has tried to deal the with Korea discount by revitalizing the capital market. That appears to be working, as shown by the strong share prices of domestic brokerage houses and financial holding companies in recent months,” HMC Investment & Securities analyst Kim Jae-seung told UPI.
“The solid performance of semiconductor companies also underpinned the recent rally. But the efforts to reduce the Korea discount are another factor underpinning the market surge,” he said.
Since its inauguration in June, the Lee Jae Myung administration has unveiled a series of measures designed to narrow the valuation gap between Korean companies and their global counterparts.
Promising to push the KOSPI index to 5,000 during his five-year term, President Lee has led the initiative to improve transparency, strengthen investor protections and reform the capital market.
Based on technical analysis, Korea Investment & Securities researcher Yeom Dong-chan projected the optimistic atmosphere to continue for the time being.
“Since 2005, KOSPI has renewed its historic high three times in 2011, 2017 and 2020. Back then, the index rose 6%, 16% and 27%, respectively, compared to the previous highs,” Yeom said in a report.
“This time, the proportion of listed companies hitting their 52-week highs is relatively high. This indicates that the rally is not merely driven by a few stocks, but rather supported more broadly across the market,” he said.
More than 30 KOSPI-listed corporations shattered their historic highs this month, mostly in the semiconductor, shipbuilding, defense, finance and biotech industries.
Among them are SK hynix, Hanwha Ocean, Samsung Heavy Industries, HD Hyundai Heavy Industries, Samsung Life Insurance, Mirae Asset Insurance, Kimwoom Securities and ABL Bio.
The country’s traditional blue chip, Samsung Electronics, the leading memory chipmaker in the world, saw its market capitalization rise 5.31% this month. But it remains far below the company’s earlier peak.
By contrast, Mirae Asset Securities analyst Kim Seok-hwan noted that SK hynix single-handedly carried the market. The company’s value soared more than 21% in September and 7% on Friday after announcing the development of the world’s first high bandwidth memory (HBM)4 chips.
The world’s No. 2 memory chipmaker is leading the industry for HBM chips, which are used for AI applications or supercomputers. Thanks to surging demand for them, SK hynix has delivered stellar results in recent years.
“SK hynix was initially expected to finish the development of HBM4 chips next year. But the company achieved the feat several months earlier than expected, and investors responded positively,” Kim said in a phone interview.
“Foreigners have snapped up South Korean shares this month, driving the KOSPI higher. And a vast majority of the funds flowed into SK hynix. I don’t think that the rally is closely related to easing the Korea discount,” he said.
Lee Phil-sang, an adviser at Aju Research Institute of Corporate Management and former Seoul National University economics professor, predicted that the upward momentum could fade.
“The incumbent administration has attempted to shore up the stock market by encouraging higher dividends and stronger shareholder protection. Such efforts seem to have positive effects. In that sense, we could say that the Korea discount is weakening,” he said.
“However, the upswing looks excessive given the difficulties of most domestic companies. It does not sound good that our stock market is thriving while our economy struggles,” he said.
The Bank of Korea expects that the national output would expand just 0.9% this year from 2024. The country failed to reach 1% in gross domestic product growth only four times since 1960.