🚨 KOSDAQ Index, Undervaluation, Buying Pressure, Price-to-Book Ratio

Today Korean Economic News | 2025.01.04

📌 Korean Stock Market, Finally 'First Place'... Stocks That Foreign Investors Are Buying Up

💬 During the first two trading days of the new year, the KOSDAQ index recorded the highest growth rate among major global markets. This is due to the perception that major domestic stocks are undervalued and expectations for reducing domestic political instability following the Corruption Investigation Office for High-ranking Officials' attempt to arrest President Yoon Suk-yeol, which acted as buying pressure. Additionally, large-scale net buying by foreign investors led the market rise, with strong performance from secondary battery, semiconductor, and biotech stocks among the market's top stocks by market capitalization.

1️⃣ Easy to Understand

This upward trend has had a positive impact on the stock market in conjunction with improving domestic economic indicators. In particular, the Bank of Korea's decision to hold interest rates steady and the government's economic stimulus policies have stimulated investment sentiment, attracting more attention from foreign investors. As a result, foreign investors have concentrated on buying major large-cap stocks such as Samsung Electronics, SK Hynix, and Celltrion, contributing to the index's rise.

Furthermore, with expectations for global economic recovery and prospects for improved performance of domestic companies, investment appeal has increased for stocks with long-term growth potential. Investors expect the Korean stock market to show strong performance this year, with particular attention to material, parts, and equipment-related stocks and renewable energy-related stocks.

Meanwhile, experts emphasize the need for a cautious investment strategy, questioning whether this upward trend in the Korean stock market will continue without short-term adjustments. They advise that global economic uncertainties, US-China trade conflicts, and domestic political situations could act as investment risks, so market volatility should be carefully monitored.

2️⃣ Economic Terms

📕 KOSDAQ Index

The KOSDAQ index is a composite stock price index that represents the average price of stocks traded on Korea's KOSDAQ market as a single number.

• Simply put, when the KOSDAQ index rises, it means the stock prices of many companies listed on KOSDAQ are generally rising.
• It plays an important role in understanding stock market trends for small and medium-sized enterprises and venture companies.

📕 Undervaluation

Undervaluation refers to a state where stocks or assets are traded at prices lower than their intrinsic value.

• To understand this easily, it's similar to a situation where a product originally worth $100,000 is sold for $50,000. In the case of stocks, when the price is lower than the company's actual value, it is considered 'undervalued'.
• It's a state where the market price of stocks or assets is priced lower than their original value, acting as a factor providing potential profit opportunities for investors.

📕 Buying Pressure

Buying pressure is a phenomenon that occurs when many people want to buy the same stock.

• For example, it's similar to when a popular product is released and many people want to buy it, causing the price to rise.
• In the stock market, increased demand for buying becomes a force that supports or drives up stock prices.

📕 PBR

The Price-to-Book Ratio (PBR) is the ratio of the stock price divided by the company's book value (net assets).

• PBR is an indicator that shows how inexpensive a stock price is compared to a company's assets.
• If the PBR is less than 1, it can be seen as a state where the stock price is valued lower than the company's asset value.

3️⃣ Principles and Economic Outlook

On the first trading day of the new year, the KOSDAQ index recorded the highest growth rate among major global markets. This is primarily due to the perception that the Korean stock market is undervalued and expectations for reduced domestic political instability. Large-scale buying by foreign investors particularly led the strong performance of secondary battery, semiconductor, and biotech stocks.

✅ Positive Factors:

• Undervalued Korean Stock Market: The undervaluation of major stocks is increasing investment appeal.
• Foreign Net Buying: Large capital inflows from foreign investors are supporting the market.

❌ Risk Factors:

• Exchange Rate Fluctuations: High exchange rates could worsen the investment environment for foreign investors.
• Corporate Performance Slowdown: Concerns about slowing corporate performance in the fourth quarter of last year could limit the market's upward trend.
• Political Instability: Although expectations for political stability have increased, the possibility of recurrence cannot be ruled out.

Experts view positively the possibility that buying pressure will continue in the domestic market from its undervalued state, but they analyze that exchange rate stability and improved corporate performance must support this to lead to a full-fledged upward trend.

4️⃣ In Conclusion

Experts advise that investors should not rely solely on short-term rebounds but make investment decisions considering long-term economic prospects and political stability comprehensively. This advice is especially important in situations where market volatility is high and difficult to predict.

While seeking short-term profits may be tempting, a broader perspective is needed to secure stable returns from a long-term perspective. It is important to develop investment strategies considering various factors such as economic indicators, global economic trends, and political situations of various countries.

For example, when judging whether a particular country's economic growth is sustainable, it is necessary to analyze how that country's political leadership and policy direction will affect the economy. Such analysis helps build a stable investment environment that is not swayed by short-term volatility.

Therefore, investors should not be fixated on short-term profits but approach investments with a long-term perspective, which is considered an essential strategy that increases the likelihood of successful investment results.