[Edaily Reporter Kim Kyung-eun ] As the KOSPI plunged to the 5,000 level, analysts have suggested that investors should view this as an opportunity to increase their holdings. Given that corporate earnings forecasts are actually being revised upward, the KOSPI level below 5,300 is assessed as an “undershooting” zone where stock prices have fallen excessively relative to fundamentals.

Lee Kyung-min, an analyst at DaishinSecurities, stated in a report on the 9th, “Levels below 5,300 on the KOSPI represent a situation where earnings are rising but prices have collapsed,” adding, “This is an opportunity to increase holdings, as the probability of a rebound is high.”

On the 6th, the KOSPI closed at 5,059.69, down 11.7% from the previous week. This was driven by concentrated selling by foreign investors amid growing concerns over tighter regulations on artificial intelligence (AI) data centers following the U.S. midterm elections. Notably, on the 6th, the circuit breaker was triggered, and the index fell as low as 4,911.28 during the trading session.

DaishinSecurities assessed that the recent sharp decline was driven more by a contraction in investor sentiment and supply-demand instability than by deteriorating corporate earnings. The 12-month forward net income forecast for the KOSPI has been revised upward by 9.7% over the past month. The fourth-quarter operating profit forecast has also risen from 264 trillion won to 290 trillion won.

Conversely, the KOSPI has fallen 44.5% since its peak on June 22. During the same period, the 12-month forward earnings per share (EPS) rose 32.9%, from 1,075 points to 1,429 points. While corporate profits have increased, stock prices have moved in the opposite direction.

Consequently, the KOSPI’s 12-month forward price-to-earnings ratio (P/E) has plummeted from 8.5x to 3.54x—its lowest level since 2001. The index level corresponding to a 12-month forward price-to-book ratio (P/B) of 1 is approximately 5,330, indicating that the KOSPI is currently trading below the book value of listed companies.

The analyst also highlighted that the KOSPI’s 12-month forward return on equity (ROE) currently stands at 26.8 percent. The analysis suggests that despite this high profitability, the market has not fully priced it in.

Even when compared to past sharp market declines, the current drop is exceptional. Among the 10 instances since 1980 where the KOSPI fell more than 30% from its peak, the median decline rate was 44.5%, which matches the magnitude of the current decline. Notably, this decline occurred in just 93 trading days—a faster pace than the 109 trading days during the 1997 foreign exchange crisis or the 240 trading days during the 2008 financial crisis.

Statistics on rebounds following past sharp declines were also cited as evidence. When the KOSPI formed a bottom after falling more than 30% from its peak, the median return was 31% over three months, 41% over six months, and 60% over 12 months. Furthermore, if investors had bought when the index had fallen 40% from its peak, the probability that the index would have risen 12 months later reached 80%.

DaishinSecurities projected that even if the KOSPI merely recovers to a forward P/E ratio of 5, it could rise to the 7,100 level. This valuation level is calculated on the assumption that current earnings forecasts remain unchanged.

As an investment strategy, the firm prioritized the semiconductor sector. Due to the recent sharp decline, the forward P/E ratios for SamsungElectronics(005930)and SK hynix(000660)have fallen to 2.67x and 2.2x, respectively. Foreign investors net sold 7.7 trillion won worth of semiconductor stocks alone in the first week of November. The firm believes that once selling pressure subsides, large-cap semiconductor stocks are likely to lead the rebound.

In addition, the firm recommended increasing exposure to sectors that have experienced sharp declines and are undervalued relative to their earnings, such as IT hardware, machinery, shipbuilding, energy, trading and capital goods, and IT home appliances. It also highlighted the transportation, insurance, and retail sectors—where earnings forecasts are being revised upward—as sectors to watch.

The report noted that it remains to be seen whether the selling pressure from foreign investors and credit concerns surrounding AI-related companies will subside. Key factors expected to influence market sentiment include the U.S. Consumer Price Index (CPI) release on the 10th, followed by earnings reports from CoreWeave on the 11th, Applied Materials on the 13th, and NVIDIA on the 18th.

The analyst predicted, “Fluctuations below the 5,300 level on the KOSPI present an opportunity to increase holdings through staggered buying,” adding, “A breakout and consolidation around the 6,000 level will mark the turning point for entering the next uptrend.”