Amid a sharp decline in the domestic stock market due to concerns over a slowdown in artificial intelligence (AI) investment following the U.S. midterm elections, global investment bank Nomura has maintained its long-term KOSPI target at 10,000 points. Despite recent stock price drops indicating an oversold market, Nomura believes that structural upward drivers such as improved corporate earnings, increased shareholder returns, and reforms in stock market regulations remain valid.
On November 6, Nomura announced in a report titled "Korea's Market Reform Moving to Next Phase" that it is keeping its KOSPI target at 10,000.
However, reflecting macroeconomic and AI-related risks, Nomura set its three-month target at 7,500 to 8,000. This projection is based on an expected price-to-earnings ratio (PER) of 5.3 to 5.7 and a price-to-book ratio (PBR) of 1.5 to 1.6 for 2027. The long-term target of 10,000 is calculated using an expected return on equity (ROE) of 31% for next year and a projected PER of 7.1 for 2027.
Cindy Park, head of Nomura's Korea Research Center, stated, "The Korean stock market is oversold, but the fundamentals appear solid."
Nomura assessed that the valuation of the domestic stock market is low, based on the KOSPI closing price of 5,383. The expected PER for next year is only 3.8, with a PBR of 1.1.
Nomura identified four key drivers for the medium- to long-term rise of the domestic stock market: improvements in corporate earnings due to AI investment, increased share buybacks by companies, strengthened shareholder rights from corporate law reforms, and growing pressure from institutional and activist investors.
Firstly, Nomura anticipates that increased AI investment will lead to improved earnings for companies involved in memory and server components, as well as those in nuclear power and electrical equipment. It analyzed that concerns over a slowdown in AI data center investments following the U.S. midterm elections will have a limited impact on domestic companies.
Cindy Park noted, "While the results of the midterm elections may lead to stricter oversight of AI companies and data centers, it is more likely that construction of data centers will be delayed or relocated rather than canceled. The impact on memory companies after 2028 is also expected to be more limited than market fears suggest." She added that demand for electrical equipment, multilayer ceramic capacitors (MLCC), and energy storage systems (ESS) is expected to remain robust.
Jung Chang-won, co-head of Nomura's Asia Research, stated, "The likelihood of a federal-level halt on AI data center construction is low, but temporary suspensions at the state level are possible. There are differing opinions within the Democratic Party regarding regulations on AI data centers, and we must consider the possibility of former President Donald Trump's veto."
Increased share buybacks and retirements by companies are also seen as positive factors. Nomura highlighted that major memory companies like Samsung Electronics and SK Hynix are setting new standards for the domestic stock market through aggressive shareholder return policies.
So far this year, the total announced share buybacks by domestic listed companies has reached 77.6 trillion won, with 62 trillion won allocated for retirements, already 3.5 times the level seen in 2025.
Nomura also pointed to stock market reforms as a long-term upward factor. It expects that reforms in the Korean stock market will transition from the stages of legal amendments and institutional preparations to actual implementation. The revision of corporate law has clarified directors' fiduciary duties to shareholders, and measures to strengthen shareholder rights, such as mandatory share buyback retirements and increased influence of minority shareholders on board composition, have been enhanced.
Nomura noted recent cases, such as SK Hynix's suspension of its Solidigm IPO review, where the interests of minority shareholders have influenced corporate decision-making. It also projected that the revised Korean Stewardship Code will lead to more active shareholder engagement from major institutional investors.
Nomura stated, "The persistent undervaluation factors in the domestic stock market, such as price discounts between preferred and common stocks and the net asset value (NAV) discount of holding companies, are expected to improve. Both phenomena are related to corporate structures that disadvantage minority shareholders, suggesting that further regulatory improvements by the government may occur."
Meanwhile, Nomura's preferred stocks include Samsung Electronics, SK Hynix, LG Energy Solution, Samsung Electro-Mechanics, Celltrion, Hyundai Mobis, Doosan Enerbility, Samsung SDS, and HD Hyundai Marine Solutions.
* This article has been translated by AI.
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