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Investors eye Goldilocks stock market in 2021; Biden, pandemic negatives

Nov 17, 2020 (Gmt+09:00)

South Korea’s stock markets are expected to continue their uptrend into next year, fueled by aggressive foreign buying on the back of strong corporate performances amid signs of improving business conditions.

But some market analysts warn that a new US trade policy under the Joe Biden presidency and the possibility of rapid respread of the COVID-19 virus could work as negatives, dampening investor sentiment.

The local stock market was bearish even a couple of weeks ago, weighed by uncertainty surrounding the US election, the coronavirus and government measures to impose heavier transfer taxes on large stockholders.

Korea's benchmark Kospi stock index heads toward record-high levels

TIDE TURNED

But the tide has turned and investors, particularly foreigners, are snapping up bargains, pushing up the benchmark Kospi index closer to record-high levels.

Korean stocks surged to a nearly three-year high on Monday, buoyed by hopes for imminent coronavirus vaccines and a rally from chipmakers such as Samsung Electronics Co.

In early Tuesday trade, the Kospi shed 0.2% at 2,538.31 as some investors took profit from recent gains.

Analysts say expectations for stronger performances in 2021, not just from chipmakers but by automakers, chemical makers and shipbuilders will drive the stock market higher, creating a Goldilocks environment for investors.

A Goldilocks market is one performing well enough to avoid losses and even provide a solid return for investors, but not so well that it creates a bubble.

According to market tracker FnGuide, the combined operating profit estimate of 276 listed companies for 2021 is 180.2 trillion won ($163 billion), up 38% from this year and above their all-time high profit of 177.5 trillion won in 2018.

Market bellwether Samsung Electronics has been hitting fresh record highs in recent sessions, with its shares returning to their pre-coronavirus levels. The stock was up 0.2% at 66,400 won in early Tuesday trade.

Crosstown rival SK Hynix Inc. has been risen in the 11 straight sessions except one on anticipation over recovering business conditions in the semiconductor industry.

PETROCHEMICALS, AUTOMAKERS, SHIPBUILDERS SET TO RISE

Chipmakers, which have led the local market’s gains, will be joined by petrochemical makers, including LG Chem Ltd., Kumho Petrochemical and Lotte Chemical. Analysts expect chemical makers’ combined operating profit to reach a record 8.5 trillion won in 2021.

“The chemical industry is heading toward a rally in its business cycle. Chemical companies’ plant operating rates have significantly increased, heralding higher operating profits for next year,” said Hana Financial Investment analyst Yoon Jae-sung.

Korean automakers’ combined operating profits are expected to rise above 10 trillion won next year, for the first time in seven years.

“Hyundai Motor may stage another rally next year if its luxury brand Genesis and electric-car IONIQ perform well in the US and China,” said Samsung Securities analyst Lim Eun-young.

Shipbuilders, which have been market laggards for years, are also rebounding on expectations that their combined 2021 operating profit is expected to rise to the highest level in 11 years.

According to global shipping and shipbuilding intelligence provider Clarksons Research, global new shipbuilding orders are forecast to rise 30% on year to 773 ships in 2021.

PANDEMIC, BIDEN PRESIDENCY NEGATIVE FACTORS

While most analyst are bullish about major Korean stocks, some remain pessimistic as the coronavirus pandemic persists.

“Governments around the world have aggressively provided ample liquidity into the market to limit the negative impact of the coronavirus. But global stock markets could plummet if the US Fed starts to rewind its easing stance,” said Jo Il-jae, an analyst at HI Investment & Securities.

EBest Investment Securities strategist Shin Joong-ho said stock investors need to closely watch moves by new US president Joe Biden, particularly regarding his trade policy.

“Global stock markets have welcomed Biden’s victory in the US presidential election. But the trade friction with China may not go away even under his presidency as he promised to continue to keep China in check,” he said.

Yuanta Securities expects the local stock market to just return to normal, with its projection for about 117 trillion won in combined operating profits for listed firms in 2021.

Write to Jae-Won Park and Bum-Jin Chun at wonderful@hankyung.com

In-Soo Nam edited this article.

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