Investment banks slash Kospi targets amid slow trade

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South Korea’s benchmark Kospi faces a long transition to a bullish rally, during which investors would have to navigate uncertainties complicated by supply bottlenecks, a rate hike and a presidential election, according to Goldman Sachs and Morgan Stanley.

Goldman Sachs cut the Kospi target to 3,350 points from 3,700, changing its view on South Korean shares from “overweight” to “marketweight,” saying it would be hard to expect market-beating corporate earnings again next year.

The local market is sensitive to global economic changes, it added.

Morgan Stanley predicted that the Kospi would stay between 2,750 points and 3,150 points, down from the previous range of 2,800 and 3,200. The investment bank cited supply shortages and weak corporate earnings.

Until the market finds momentum to drive up stocks after the March presidential election that entails a new economic policy and regulations, investors would have to wait on returns in a sluggish market, according to Morgan Stanley.

JP Morgan, which said Kospi would climb as high as 3,300 points, pointed to shrinking trade by retail investors that propped up a Kospi rally early this year, describing the momentum as being “pressured” amid the omicron variant spread and the US Fed’s sooner-than-expected tapering of market support.

JP Morgan added that retail investors no longer focus on local shares because they can make returns on foreign shares or seek alternative investments altogether, noting they will show a similar pattern of trade next year.

Meanwhile, the Korea Exchange said Thursday that the daily trading volume this month fell to 10 trillion won ($8.4 billion), the lowest since May 2020, when it was 9 trillion won.

“Retail investors are making exits and that’s affecting trade,” a Korea Exchange official said.

In September, retail investors made up almost 60 percent of those buying Kospi shares, but they now account for 50 percent.

“Retail investors used to push up shares but they are looking for immediate returns. And when the market is this uncertain, they won’t stay around to invest and the pattern will be similar next year,” said Choi Yoo-june, an analyst at Shinhan Investment Corp.

Meanwhile, Goldman Sachs said the chip industry would post strong earnings next year, while Morgan Stanley picked banking and gas industries to report higher earnings.

By Choi Si-young (siyoungchoi@heraldcorp.com)