An electronic board displaying the Composite Korean Equity Price Index (KOSPI) in a trading room at Hana Bank headquarters in Seoul on Thursday. (Yonhap)

South Korea’s benchmark Kospi faces long transition to a bullish rally, in which investors will face uncertainties complicated by supply bottlenecks, a rate hike and an election presidential, according to Goldman Sachs and Morgan Stanley.

Goldman Sachs reduced Kospi’s target to 3,350 points from 3,700, changing its view on South Korean stocks from ‘overweight’ to ‘market weight’, saying it would be hard to expect. again to above-market corporate profits next year.

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

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

Until the market finds the 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 sluggish market, according to Morgan Stanley.

JPMorgan, who said the Kospi would climb to 3,300 points, pointed to the contraction in retail investor trade that supported a rally in the Kospi earlier in the year, describing the momentum as being “under pressure” amid the spread of the omicron variant and the earlier US Fed – a faster-than-expected decline in market support.

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

Meanwhile, the Korea Stock Exchange said Thursday that daily trading volume this month fell to 10,000 billion won ($ 8.4 billion), the lowest since May 2020, when it was of 9 trillion won.

“Retail investors are making exits and it is affecting trade,” said an official from the Korea Stock Exchange.

In September, retail investors accounted for almost 60% of buyers of Kospi shares, but they now represent 50%.

“The Kospi could drop to 2,700 by the end of the year. It will skyrocket next year when we see the supply disruptions ease, ”said Kim Seung-hyun, head of research at Yuanta Securities Korea.

South Korean stocks will outperform their global counterparts next year on bullish 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 predicted higher profits in banking and gas.

By Choi Si-young ([email protected])