South Korea's benchmark stock index closed at its highest-ever level on Monday, powered by economically sensitive stocks such as transportation, brokerage and retail companies seen to have underperformed the market amid an improved earnings outlook.
The weaker-than-expected US jobs report for April, released last Friday, lessened fears that the Federal Reserve might tighten its policy anytime soon to cool an overheating economy, thus pushing US stock markets to their highest levels.
Cyclical stocks will likely continue to lead the broader markets higher, with relatively undervalued construction companies, refineries and automakers taking the baton from steel and chemical companies in rotational buying, analysts said.
The benchmark Kospi closed up 1.63% at 3,249.29 on Monday, gaining 13% year to date. At one point, it went as high as 3,255.90, just shy of its highest intra-day peak of 3,266.23 touched on Jan. 11, 2021.
"Reduced worries about tapering (US bond purchases) will lead to a weaker dollar and push raw materials prices further higher," said HI Investment & Securities analyst Cho Ik-jae. "Now that there is little likelihood that the dollar is making a strong rebound, investors are chasing economically sensitive stocks related to raw materials."
In response to the April payrolls data, Richmond Federal Reserve Bank President Thomas Barkin said it was not the time to consider any reduction in the US bond purchase program. Federal Reserve Bank of Minneapolis President Neel Kashkari also hinted at no change in the US central bank's monetary policy in the near term, during an interview with Bloomberg TV.
On the main bourse, foreign investors turned net buyers in nine days, snapping up a net 238.7 billion won ($214 million) worth of shares on May 10. Institutional investors purchased a net 966.8 billion won, marking their largest net buying in a single day since their 1.03 trillion won net purchases on Jan. 7, 2021.
Of the institutional purchases, asset management companies accounted for 164.1 billion won, in their fourth consecutive day of net purchases and the largest amount of one-day buying in a month.
The improved earnings outlook made Korean stocks appear cheaper than before. According to FnGuide, a market tracker, on May 7 the Kospi-listed stocks traded at an average of 12.4 times earnings estimates for the next 12 months. That compares with an average price-earnings ratio of 13.7 at the end of March. On Jan. 11, when the Kospi hit its highest-ever intraday level of 3,266.23, the average PER exceeded 15.
Earnings per share averaged 9,756 won as of last Friday, up 16.7% quarter on quarter.
On the Kosdaq junior market, the three largest market cap stocks pulled the market higher. Celltrion Healthcare Co. gained 2.92%, with its sister company Celltrion Pharm Inc. up 4.93%. Pearl Abyss Corp., an online game developer, jumped 6.61%, outperforming the Kosdaq index that added 1.48% to close at 992.80.
Hana Financial Investment analyst Lee Jae-man said that since 2010, construction, steel and machinery companies have been the main beneficiaries of oil price gains since the West Texas Intermediate (WTI) rose from the $60-$70 level per barrel.
Once the main global oil benchmark climbed to the $70-$80 level, investors shifted to shipbuilders, refineries and automakers, while taking profits from steelmakers, he added.
DB Financial Investment research head Chang Hwa-tak said that stronger demand for raw materials will continue to drive their prices higher and benefit relevant companies.
"As demand is returning to pre-pandemic levels towards the second half of this year, the bullish raw materials prices need to be taken with a longer perspective," Chang said.
Meanwhile, electric vehicle battery-related companies LG Chem Ltd. and SK Innovation Co. were the only two decliners among the top 20 Kospi stocks in terms of market capitalization. SK Innovation dropped 1.59%, a day before the stock market debut of SK IE Technology Co. in which the battery maker currently has a 61.20 stake. LG Chem edged down 0.76%.
Write to Yun-Sang Ko at kyh@hankyung.com
Yeonhee Kim edited this article.
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