An electronic board displaying the Korea Composite Stock Price Index (Kospi) in a trading room at Hana Bank’s headquarters in Seoul on December 23. (Yonhap)

South Korea’s benchmark Kospi faces a long transition to a bullish rally, during which investors will have to navigate uncertainties complicated by supply bottlenecks, rising rates and a presidential election. , according to Goldman Sachs and Morgan Stanley.

Goldman Sachs cut Kospi’s target to 3,350 points from 3,700, changing its view on South Korean stocks from “overweight” to “market weighted”, saying it would be difficult to expect back to above-market corporate earnings next year.

The local market is sensitive to global economic changes, he added.

Morgan Stanley predicted the Kospi to remain between 2,750 and 3,150 points, down from the previous range of 2,800 and 3,200. The investment bank cited supply shortages and weak earnings for businesses.

Until the market finds momentum to push stocks higher after the March presidential election that involves new economic policies and regulations, investors will have to wait for returns in a lackluster market, according to Morgan Stanley.

JP Morgan, which said Kospi would climb as high as 3,300 points, pointed to shrinking retail investor trading that backed a Kospi rally earlier this year, describing momentum as “under pressure” amid from the spread of the omicron variant and the US Fed earlier larger than expected decrease in market support.

JP Morgan added that retail investors are no longer focusing on local equities as they can generate returns on foreign equities or seek alternative investments, noting they will show a similar trading pattern next year.

Meanwhile, the Korea Stock Exchange said on Dec. 23 that daily trading volume this month fell to 10 trillion won ($8.4 billion), the lowest since May 2020, as it was 9 trillion won.

“Retail investors are exiting and it’s affecting trading,” a Korea Stock Exchange official said.

In September, retail investors made up nearly 60% of Kospi stock buyers, but they now make up 50%.

“Kospi could drop to 2,700 by the end of the year. It will surge again next year when we see supply disruptions ease,” said Kim, head of research at Yuanta Securities. .

South Korean stocks will outperform their global peers next year on upbeat corporate earnings, he added, referring to tech giant Samsung Electronics, which he said would lead the rise.

Goldman Sachs said the chip industry will post strong profits next year, while Morgan Stanley forecast higher earnings in banking and gas.

By Choi Si-young ([email protected])