Booming semiconductors to lift KOSPI: BNP Paribas

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By Kim Yoo-chul

While the Korean stock market is reacting quite emotionally to the spread of the Omicron variant of SARS-CoV-2 and continued pace of the Delta variant, a top-tier Europe-based investment bank said Tuesday the country's benchmark KOSPI index will rise further next year.

In a report to clients, BNP Paribas presented an "overweight" position on the country's equity market and expected the benchmark index to rise above 3,300 points, over 10 percent higher from Tuesday's closing.

The main reasoning behind the investment bank's rather positive market outlook is based on its assessment of signs of memory chip price rationalization and improvements to domestic consumer spending.

Common thoughts are that today's global memory chip shortage will drag on through next year, yet the situation will still improve because of increased supply thanks to major chipmakers' efforts to reduce inventory. The ongoing chip shortage has gravely hit production across a lot of backbone industries in the United States and Korea as well, ranging from cars to mobile phones ― vital tech-reliant items affecting people's daily life.

BNP Paribas didn't specifically say whether or not it has recommended for clients and investors to pursue medium- and longer-term trends in the semiconductor space. But it expects the Bank of Korea raising the benchmark rate two times next year will be a plus factor for Korean banks in terms of generating increased margins.

Regarding its projections for the Korean economy, the investment bank was expecting the GDP to rise 2.7 percent next year, from 3.9 percent this year. The dollar-won rate will rise to the 1,230 level late next year, from 1,195 in the first quarter of 2022.

Korea is one of the leading Asian economies that has initiated steps for monetary tightening. BNP Paribas expects other Asian economies to take similar steps late next year.

Its rather positive assessment came after the country's KOSPI index lost its earlier gains for the year because of the continued outflow of foreign funds amid concerns that Omicron could chill the recovery momentum of the global economy.

Stock market analysts say the local stock market lacks influential or big investors, with investors responding to day-to-day trading. Plus, retail investors were focusing on limited sectors such as battery, bio and semiconductors, while planned upcoming blockbuster IPOs have been cited as a core factor for digesting liquidity.

"BNP Paribas' expectation for the stock market next year does make a little sense, as the country will see a presidential election next year, and if the ruling Democratic Party of Korea (DPK) presidential candidate Lee Jae-myung wins, then the new government is widely expected to introduce various market-friendly measures," said Kim Il-tae, a senior fund manager at Meritz Investment.

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