Kospi's 12-month P/E ratio hits a 13-year high

Kospi has posted a 13-year high with 12-month forward price-earnings ratio recording 12.84 times on August 6, according to financial data provider FnGuide.

This is the highest on a monthly basis since July 2007 when the P/E ratio posted 12.95, right before the US subprime mortgage crisis broke out. In June 2000, the P/E ratio posted as high as 20.1 during the IT bubble.

There are concerns over the high valuation of the Korean stock market.  There are views that the global coronavirus pandemic will extend companies' poor performance throughout the second half of the year which widens the gap between the real economy and the stock market.

Yet, experts agree that it is difficult to assess the stock market with existing criteria given that there is an inflow of massive liquidity due to the market interest rate dropping to almost 0%.

P/E ratio is calculated by dividng the company's share price with the net return per share. It shows the current value of the stock compared to the company's earnings. In the securities industry, it is a common practice to use the P/E ratio which reflects earnings projection instead of past earnings since share prices move based on the company's future valuation.

Write to Jin-sung Kim at jskim1028@hankyung.com