JP Morgan Raises KOSPI Target Amid Bull Market Optimism

Global investment bank JP Morgan has once again raised its KOSPI target. It projected that the index could rise to as high as 7,500 points in a bull market scenario.

JP Morgan announced on Feb. 3 in its ‘Korea Equity Strategy’ report that it would raise the base and bull scenario targets for the KOSPI index to 6,000 and 7,500, respectively.

JP Morgan evaluated the Korean stock market, stating that “it recorded the highest performance among major global stock markets last year” and “is showing a strong start this year as well.”

Regarding the KOSPI index, which broke through 5,000 points last week, JP Morgan explained that after reviewing the market’s momentum, it determined there were sufficient grounds to maintain a positive outlook.

JP Morgan estimated that approximately 60% of the KOSPI’s gains since September last year were led by Samsung Electronics and SK Hynix. This was attributed to the sharp rise in memory prices as memory semiconductor supply became difficult since early September. JP Morgan assessed that this trend continues to this day.

JP Morgan also stated that the market’s upward momentum is not limited to Samsung Electronics and SK Hynix. JP Morgan explained that “from a global perspective, U.S. policy stance remains favorable to the stock market, and considering that this year is an election year and the 250th anniversary of America’s founding, this stance is likely to be maintained.”

Domestically, JP Morgan viewed that earnings per share (EPS) growth of more than 20% continues in medium- to long-term industrial growth sectors including defense, shipbuilding, and power equipment, in addition to memory.

JP Morgan explained that the consensus for this year’s EPS for Morgan Stanley Capital International (MSCI) Korea has been revised upward by 60% over the past 6 months. By sector, technology stocks increased by 130% and industrials by 25%.

JP Morgan also estimated that this year’s EPS for Samsung Electronics and SK Hynix would exceed the current consensus by up to 40%. It analyzed that the target stock prices for both stocks have additional upside potential of 45-50% compared to current stock prices.

JP Morgan also evaluated supply and demand positively. JP Morgan stated that although the KOSPI index has more than doubled since mid-April last year, no major investment entity leading the upward rally is visible, interpreting this to mean that there is considerable room for capital inflows from all investment entities including foreigners, institutions, and individuals.

JP Morgan explained that “considering that foreign or domestic (individual and institutional) investor positioning has not yet sufficiently caught up, additional excess returns are still possible despite occasional corrections due to overheating phases.”

For individual investors, JP Morgan analyzed that the introduction of tax benefits and the expansion of domestic stock allocation by institutional investors could serve as meaningful drivers.

JP Morgan also viewed that re-rating due to governance reform could serve as a catalyst factor. JP Morgan projected that “(governance reform) related legislative work is mostly in the final stage, and going forward, it will be truly affected by thorough enforcement and continuous supervision,” adding “this is expected to lead to a transformation in the perception of companies and investors in the long term.”

JP Morgan maintained its overweight opinion on the semiconductor sector and presented medium- to long-term industrial themes such as defense, shipbuilding, power equipment, construction (E&C), and robotics, as well as governance reform beneficiaries such as holding companies and financial companies, as long-term key preferred areas.

JP Morgan continued, stating that “regionally, Korea remains our top priority overweight (OW) market within the region,” and “regional outperformance phases tend to last up to an average of 7 years, and Korea is currently less than 1 year into this process.”