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KOSPI valuation hits highest level since 2002

All News 11:07 June 08, 2020

SEOUL, June 8 (Yonhap) -- South Korea's main stock index hit the highest level in valuation since 2002, highlighting stock prices' roller-coaster gains compared with the actual earnings of the pandemic-hit companies, analysts said Monday.

The price-to-earnings ratio (PER) of the benchmark Korea Composite Stock Price Index (KOSPI) stood at 25, the highest since 25.31 on July 18, 2002.

The PER of stock indicates the market value of a stock as compared with the company's earnings. A high PER of stocks means that a stock's price is high compared with the corporate earnings and possibly overvalued.

KOSPI valuation hits highest level since 2002 - 1

South Korean corporate earnings thinned conspicuously last year, according to the data from the bourse operator Korea Exchange (KRX).

The net profit of the non-financial companies listed at the main bourse stood at 52.44 trillion won (US$43.54 billion) in 2019 on a consolidated basis, down 52.82 percent from a year ago.

Their net profit slumped 47.8 percent on-year in the January-March period this year, as COVID-19 weighed heavily on the export-intensive economy.

The KOSPI, however, closed at 2,181.87 points Friday, flying high to the highest finish since Feb. 21 when the COVID-19 alert was raised to the highest level.

Such a high PER of the KOSPI may peg the index's gains at some point, analysts said, while being divided over how long the winning streak will continue.

"According to the calculations based on the cyclically adjusted price earnings ratio (CAPE), the six-month expected rate of return is about 5 percent," Samsung Securities researcher Yoo Seung-min said. "It means that the KOSPI gains will come to its limits, until the companies' earnings recover."

Moon Nam-joong, an analyst at Daeshin Securities, bet on the brighter side.

"The stock gains may slow down but are likely to stay on the winning track," he said.

"The (major) economies' emergency policy tools are quite unprecedented ... The liquidity-booster plans led by the U.S. and Germany, and the testing results for the COVID-19 treatments have improved expectations for the economic recovery."


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