South Korea’s Stock Rally Is Narrow and Getting Risky, Analysts Warn
By Aboki Forex —
South Korea’s Kospi Index has surged 75% this year, but the rally is dangerously narrow. Just two stocks, Samsung Electronics and SK Hynix, account for two-thirds of the gains. Their record profits have driven the market, but many other stocks are being left behind.
Market breadth is shrinking. Only 33% of Kospi stocks now trade above their 50-day average, down from 70% three weeks ago. Only 2% of members are hitting new 52-week highs, even as the index sets records. Analysts say buying the Kospi is now a bet on memory chips, not a diversified play on the Korean economy.
Froth is building in smaller stocks. Non-tech firms have contributed just 4% of earnings growth since September. Valuations are stretched, especially in materials and electric-vehicle stocks. Battery maker Posco Future M trades at over 300 times forward earnings, even though it carries the most sell ratings on the index.
“This is a party you want to enjoy while staying near the exit,” said Mo Young, a portfolio manager at RootN Global Investors in Seoul. The Kospi dropped nearly 5% on Tuesday, the worst in Asia, as chip stocks fell with U.S. peers. Investors are now watching for more signs of overheating.