Experts view KOSPI could move upward by the first half of 2022
By Anna J. Park
Is January's bull run on stock markets around the world "irrational exuberance" ― a term popularized by former Fed chairman Alan Greenspan referring to market optimism-lacking any real foundation? And how long will it continue?
Questions like these arise as the stock markets seem to reflect optimism about a post-pandemic world at an overwhelmingly exuberant level, while the actual economy is still experiencing the effects of COVID-19.
Both the Korean and U.S. stock markets saw a steep rise of some penny stocks, as evidenced by multi-fold jumps in companies such as U.S.-headquartered renewable chemical and biofuel firm Gevo and Lexicon Pharmaceuticals. Penny stocks ― whose prices were below $1 at the beginning of the year ― newly added to the Russell 3000 index have soared around 50 percent during the past three weeks, while stocks worth over $100 rose about 2.6 percent during the same period.
Ever-increasing interest in and the growth of special acquisition company (SPAC) mergers, aiming to enter the stock market faster than the usual IPO procedure, also raise concerns about a possible market bubble ― just an unconfirmed rumor is enough to bring an upturn, as seen in the case of Churchill Capital, whose stock price more than doubled over the past two weeks because of a SPAC merger rumor with EV maker Lucid.
Key stock indices show further room for upturns
Despite ongoing talks about an imminent bubble burst, market watchers still say the market is maintaining a rational basis.
They say given U.S. President Joe Biden's recent inauguration, the bull market could continue until the second half of the year, because of the new administration's expansionary fiscal policy direction.
"One needs to remember that 2021 marks the first year of the Biden administration. Since 2000, the first year of any new administrations in the U.S. logged an annual average hike of 9.9 percent in the S&P 500 index," Moon Nam-joong, a global strategy analyst at Daishin Securities, pointed out.
Other analysts also share the view that the position of maintaining expansionary policies is the psychological basis for positive investment sentiment.
"The key reason behind the overheated market is a tacit consensus shared among investors that the global economy has just begun to recover, and the expansionary policies won't likely be ended," said Lee Hyo-seok, an analyst at SK Securities. "Thus, the current overheated atmosphere could face a short-term correction, yet it is unlikely that investment sentiment will completely die down."
Experts also say major leading indicators such as the 10-year U.S. Treasury bond rate and OECD Composite leading indicators (CLIs) still do not exceed any dangerous thresholds.
Some market analysts expect the current bull market to continue until the first half of 2022, given the current economic recovery cycle as well as past analyses of the financial crisis in the late 2000s.
"The KOSPI's uptrend is expected to continue, considering the current phase in economic recovery cycles. The second wave of the rally, following a sideways drift, was also witnessed during the past financial crisis as well," said a recent report by Shinhan Financial Investment published Monday.
"If one supposes that the current upward movement will continue for 19 months ― as it did back in the financial crisis period ― we can expect the KOSPI to remain bullish until the first half of 2022."