Stock boom
Benchmark KOSPI expected to extend post-election rally
Analysts are turning more positive about the stock market with the launch of the new administration, with some expecting the main index KOSPI to reach 3,000 points.
Nomura Securities research center chief Chung Chang-won noted in a recent report that the KOSPI has the potential to reach 3,000 points.
His prediction comes at a time when the KOSPI reached all-time highs twice for the latest two trading days. On Tuesday, it closed at 2,292.76, up 2.3 percent or 51.52 points from the latest trading session on April 4.
“If the dividend payout ratio of the KOSPI rises to Japan’s 50 percent from the current 20 percent in an effort to strengthen shareholder rights, the KOSPI has the potential to reach 3,000 points,” he noted in a report on macroeconomic policies and stock market outlook in time for the 2017 presidential election.
The report is based on the assumption that progressive candidates promising to reform the structure of corporate governance will win the election. New President Moon Jae-in has promised to beef up shareholder rights and improve corporate governance. According to exit polls, he won the election.
The report also expects the new administration to prepare a supplementary budget of around 10 trillion won in June. It notes that the supplementary budget will neutralize the fallout of China’s economic retaliation about Korea’s decision to deploy a U.S. missile defense system as well as corporate restructuring that will shed jobs.
Adoption of a stewardship code is also expected to work positively on the stock market. A stewardship code, or a set of guidelines for exercising shareholders’ voting rights, encourages major institutional investors such as pension funds and asset management companies to actively participate in management decisions of the companies they have invested in.
After Japan’s pension funds adopted a stewardship code in 2014, Japanese firms improved their corporate governance structure while paying more dividends to shareholders. It eventually pulled up stock prices, with more foreign investors buying Japanese stocks.
Korea introduced its own version of a stewardship code last year, but none of the funds or asset manage- ment companies here have used the system so far.
The new administration is set to be more aggressive.
“While the U.S. Dow index rose 50.8 percent and Japan’s Nikkei rose 83.9 percent during the past four years, Korea saw only a 3.9 percent rise,” said Lee Yong-sup, heading the economic policy division at Moon’s camp.
“The stock market will see solid growth if the new administration gets rid of stumbling blocks in the capital market, effectively implementing a stewardship code to improve the structure of corporate governance as well as creating jobs.”
Analysts note that if the National Pension Fund decides to participate in the stewardship code, it would be only a matter of time before asset management companies join in.
A huge trade surplus is also prompting analysts to expect an earnings surprise in the second quarter, which will further pull up the stock index.
“Korean corporations chalked up impressive results in the first quarter of this year. Especially, chipmakers Samsung Electronics and SK hynix chalked up huge profits and such booms are likely to continue for the time being,” Shinhan Investment Corp. analyst Lee Sun-yup said.