[Edaily Reporter Kim Kyung-eun ] As the KOSPI remains stagnant around the 6,000 mark, domestic securities firms continue to revise their annual index targets downward. As recently as the first half of this year, there was a sense that the index would break through the 10,000 mark within the year, but the situation has reversed as valuations (stock prices relative to earnings) have been adjusted in light of recent stock price declines. In contrast, global investment banks (IBs) are taking a contrary stance, arguing that the domestic stock market remains undervalued and raising their investment targets.

According to the financial investment industry on the 4th, Daishin Securities lowered its KOSPI target for this year from 11,500 to 9,300 in its “August Stock Market Outlook and Investment Strategy” report published the previous day (the 3rd). This was the result of a downward adjustment to the fair valuation to reflect rising bond yields and the possibility of further interest rate hikes.

The firm predicted that high interest rates would limit valuation growth despite improvements in corporate earnings. The target price-to-earnings ratio (P/E ratio) for the semiconductor sector was lowered from 8x to 7x. The target P/E ratio for the non-semiconductor sector was also revised downward from 15x to 11x.

Lee Kyung-min, an analyst at Daishin Securities, explained, “Since exports—excluding semiconductors—have only just entered a recovery phase, it will be difficult for valuations to expand significantly as they did in the past,” adding, “The target index may change depending on future earnings outlook and bond yield levels.”

Shinhan Investment Securities also presented a target range of 8,300 to 8,800 for the KOSPI in the second half of the year in a recent report. This represents a 20% reduction compared to the upper limit of 11,000 proposed early last month. This reflects the fact that stock prices are trading at a significant discount to their fair value as the market harbors skepticism regarding corporate earnings outlooks and faces supply-and-demand pressures.

Downward revisions to target prices for individual stocks are also occurring in succession, not just for the KOSPI index. According to financial information provider FnGuide, a total of 828 securities firm reports published in July lowered target prices. This is more than twice the number of reports (410) that raised target prices during the same period.

This marks the first time in 15 months—since April of last year (409 upward revisions vs. 503 downward revisions)—that downward revisions have outnumbered upward revisions in securities firm reports. This is interpreted as a flood of reports readjusting corporate earnings forecasts and valuations following the KOSPI’s 22.19% plunge during the month of July.

In contrast, the global investment banking industry remains optimistic about the domestic stock market. In a report published late last month, Morgan Stanley upgraded its investment rating on the Korean stock market from “Neutral” to “Overweight.” It maintained its KOSPI target at 9,000, unchanged from its previous forecast. As of the report’s publication date, it assessed that the KOSPI had room to rise by approximately 36%. Goldman Sachs also recently raised Samsung Electronics’ 12-month target price from 480,000 won to 490,000 won and maintained its “Buy” rating.

The investment banking industry cites the normalization of supply and demand as the basis for a KOSPI rebound. Given that the recent sharp decline in stock prices has reduced valuation pressures, the industry believes now is an opportune time to buy back into Korean stocks. In particular, it assessed that the reduction in borrowing by leveraged exchange-traded funds (ETFs) and hedge funds has progressed significantly, and that the liquidation of margin trading positions by retail investors has also passed its peak.

Mixo Das, Head of Korean Equity Strategy at JPMorgan, stated, “Although the Korean stock market has undergone an intense deleveraging process since late June, it has now largely entered the final stages.” He added, “While there may be various variables, considering the lower valuations and solid earnings momentum, this is an attractive investment window.”