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Based on the closing price on the 7th, the KOSPI has gone beyond the 3000 line to the 3030s (3031.68), rising for 10 consecutive weeks. The KOSPI closed at 2873.47 on December 30, the closing date of the stock market last year, and set a record for 9 consecutive weeks. In light of the current KOSPI level, this week’s closing price (closed on the 8th) is expected to be formed much higher than this, and the 10th consecutive week’s rise was solidified.
Once in ten years
According to Daishin Securities’ analysis data, only 5 cases in which the KOSPI recorded an upward trend for more than 10 consecutive weeks in the 40 years since 1980. It appeared once every 10 years. The record for 9 consecutive weeks or more is also rare, with 10 times including this period. Even considering the expectations of domestic and overseas economy and abundant liquidity in the market, an uptrend that proceeds too quickly is a cautionary point.
The KOSPI has climbed sharply since last November. It has increased by 26.74% from November to the end of the year. Most of the 2020 annual growth rate (30.75%) is concentrated in two months. This may lead to an analysis that it has entered a period of a major rise, but at the same time, it is a point of controversy over speeding. This year, it has already increased by 5.5% after 4 trading days. Lee Kyung-min, head of the investment strategy team at Daishin Securities, said, “According to the rules of experience, even if it rises for 9 consecutive weeks, it is a record whether it will come out once every 3-4 years,” he said.
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The traditional standard for determining whether the stock price is bubbling also generally points to the side of’the KOSPI has risen too quickly and is at an excessive level’.
The stock price-to-earning ratio (PER) commonly used in stock prices reached 14.41 times at the end of 2020 (12 months ahead, combined with F&Guide). It is a clue that the analysis is in the bubble stage, much higher than the 10 times the long-term average of the domestic stock market. This figure has never been higher than it is now, except in June 2000 (20.10 times), when the IT bubble was in full swing. It was about 12.95 times even in July 2007, when the multiple was high. There was a bubble controversy when it rose to 13 times in mid-August (13.15 times) and mid-December (13.02 times) last year.
Even when judging by the so-called’Buffett Index’, which is the value obtained by dividing the market capitalization of the stock market by the gross domestic product (GDP), the current stock price is said to be too high. The International Monetary Fund (IMF) estimates that Korea’s GDP in 2020 is KRW 1900 trillion, and as of the end of last year, the market capitalization of the KOSPI reached KRW 1980 trillion, indicating the Buffett Index at 104.2%. Previously, it was always below 100%. Usually, if the index is around 70~80%, the stock price is considered undervalued, and if it exceeds 100%, it is judged to be overvalued. In the new year, stock prices continued to surge, and on the 7th, the market capitalization of the KOSPI reached 2086 trillion won. It increased by more than 100 trillion won for 4 trading days until the 7th of the new year.
These two standards are often used and have certain usefulness as they allow you to judge the overall trend, but there are limitations and weaknesses. In the case of the stock price/earnings ratio, it is difficult to ensure accuracy because the company’s earnings estimate is used after 12 months. Of course, the Buffett index cannot be taken as an absolute criterion. This is because it has a problem that it is difficult to reflect changes in the economic environment and structure. “The Buffett Index in the US has exceeded 200% since the late 1990s, and this overlaps with the period of change in the market structure, where the proportion of intangible assets increases.” In Korea, as the industrial structure that was intensively dependent only on semiconductors and exports has diversified to rechargeable batteries, pharmaceuticals, and the Internet, there are aspects that undervalued areas receive re-evaluation or normal evaluation, Lee added.
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″Current stock price overvalued by 30-40%”
Kim Young-ik, a former analyst at Sogang University, believes that it is effective to use’average daily exports’ as a criterion for determining stock price adequacy in Korea. As a result of the analysis, it is because the daily average export performance has the highest correlation coefficient with the KOSPI among macroeconomic variables. According to Professor Kim’s analysis, at the end of November last year, KOSPI was already overvalued by 27%, and it is the most severely overvalued since July 2007 (31% overvalued). This number rose to 32% at the end of last year, the highest ever. This means that the stock is currently overvalued by 30-40%.
Not only did the KOSPI settle in 3,000 units on the 7th, and foreign investors who were constantly selling nets in the New Year are turning to net buying on this day and forming a new trend.
“In the stock market, the future value reflecting expectations is higher than the current value based on performance,” said Joo-won, head of the economic research department at Hyundai Economic Research Institute. It will continue in the year.” Seok-won Choi, head of SK Securities Research Center, also predicted that “unless faith in the economic recovery is broken, it will continue to rise, centering on economically sensitive stocks such as chemicals, nonferrous metals, and electricity and electronics.” Along with expectations of an economic recovery, the possibility of an interest rate hike was also considered a factor that predicted the uptrend.
Falls in May-June?
Even if the stock market is evaluated positively in this way, the alertness to short-term overheating is not small. Center chief Choi predicted, “After the first half of this year, the adjustment will be made, and the adjustment will increase in May and June” This is because the stock price rises too quickly and the economic recovery may not meet expectations. Above all, he adds, the possibility of change in government policy should be kept in mind. It is analyzed that when the price of raw materials rises and the rent price of cheonsei, which has soared, is reflected in the living price, the same monetary and fiscal policy will have to be changed. The view is that the direction of the government policy is more important than the controversy over overvaluation based on traditional standards. This is a part of raising a sense of vigilance in connection with the situation where household debt is increasing a lot.