Samsung Electronics' headquarters in Seocho, Seoul [Yonhap]
Samsung Electronics' headquarters in Seocho, Seoul [Yonhap]

Despite the Kospi plunging through the 6,000 mark during trading, investment analysts broadly agree that shares are now undervalued. Their advice: build a strategy to capitalize on the rebound potential the sharp selloff has created, as a recovery is seen as a matter of when, not if.

According to Korea Exchange, the Kospi closed Wednesday down 348.89 points, or 5.46 percent, at 6,035.35, having fallen nearly vertically from 7,000 to 6,000 in just a matter of days. The Kospi Volatility Index, known as VKOSPI, had stabilized to around the January monthly average of 34.49 as recently as early this month, but surged during the recent selloff. After falling to 36.81 on Thursday, the index jumped to 48.53 on Tuesday, approaching the 50 level.

As the Kospi tumbled, retail investors stepped in as consistent buyers. From Oct. 6 through Tuesday — a stretch of five consecutive sessions of index declines — individual investors made net purchases of 10.16 trillion won ($7.58 billion) on the Kospi market.

Analysts at brokerages have pointed to past post-crash rebounds and compressed valuations as evidence that the current price level represents an undervalued zone. Han Ji-young, a researcher at Kiwoom Securities, said the recent plunge has shifted the risk-reward ratio in favor of a rebound over further losses. "Rather than chasing the selloff, it is more appropriate to hold existing positions or gradually build exposure through phased buying," Han said.

A Kiwoom Securities analysis of past instances when the Kospi fell for five consecutive sessions found that average returns over the following 60 trading days were a positive 8.2 percent. In particularly severe downturns — such as the COVID-19 pandemic crash of March 2020, which saw a 20.5 percent drop, and the US credit rating downgrade in August 2011, which triggered a 15.1 percent decline — the index averaged a gain of 19.5 percent over the subsequent 60 trading days.

Expectations for earnings improvement at Samsung Electronics and SK hynix are also cited as grounds for calling a bottom. The two stocks have fallen 15.9 percent and 21.3 percent, respectively, so far this month, pushing their price-to-book ratios down to around 1.4 times. Yet their combined operating profit is forecast to rise from 626 trillion won in 2026 to 944 trillion won in 2027.

Also drawing attention is the per-share price tied to the transfer of Samsung Electronics shares to Lee Jae-yong on Tuesday. Lee received a 2.6 trillion won stake — representing a 0.17 percent interest — from Hong Ra-hee, and the acquisition price for the gift was set at 250,500 won per share, roughly 8 percent above Tuesday's closing price. Some analysts read this as a signal that the current share price does not fully reflect Samsung Electronics' medium- to long-term growth prospects.

While waiting for large-cap stocks to rebound, analysts are flagging semiconductor materials, parts and equipment stocks as an investment alternative. Lee Jong-wook, head of the technology team at Samsung Securities, said such stocks offer an excellent option in the interim. "Visibility of earnings growth in 2027 and 2028 is the most important selection criterion," Lee said.


kacew@heraldcorp.com