Korean stocks forecast to be bearish as political risks loom

Trump 2.0 policies and Fed rate cuts to shape KOSPI's yearly course

By Yi Whan-woo

The Korean stock market is expected to face a bearish outlook during the first few months of 2025, with uncertainties arising from rare political events in both Korea and the United States potentially hindering the market's recovery.

The market is forecast to rebound when uncertainties are cleared concerning the two events — the impeachment of President Yoon Suk Yeol and the return of former U.S. President Donald Trump to the White House.

The Constitutional Court in Seoul is set to finalize its ruling on the impeached president no later than June, while Trump’s tougher “America First” policies are expected to take shape as he begins his second presidency in January.

The pace of gains for Seoul stocks, however, may be limited, ranging from slight to moderate.

Such a forecast comes as Trump's plans for higher tariffs and the mass deportation of undocumented immigrants could exert upward inflationary pressure, potentially offsetting the effects of the highly anticipated series of rate cuts by the U.S. Federal Reserve.

Correspondingly, the benchmark KOSPI is projected to move in a range between 2,250 points and 2,900 points, meaning the index will not reach the 3,000-point milestone again after it did in 2021.

These projections reflect a broad consensus from the research chiefs of eight securities firms in Seoul, who were contacted by The Korea Times to forecast the 2025 stock market.

The eight, including those listed as Tier 1, were Mirae Asset Securities, Korea Investment & Securities, KB Securities, NH Investment & Securities, Samsung Securities, Meritz Securities, Hana Securities and Kiwoom Securities.

Trump 2.0 policies, Fed’s rate cuts

Asked about the yearly growth trend of the KOSPI, Park Hee-chan of Mirae Asset Securities said the main bourse will "mostly head toward recovery, although it will face a tough time in early 2025."

Lee Jong-hyung of Kiwoom Securities voiced a similar view, saying, “The valuation of the KOSPI will improve as the year passes on.”

Jay Yoo of Korea Investment & Securities and Cho Soo-hong of NH Investment & Securities projected, respectively, that the KOSPI will experience a correction in the first half of 2025 and slightly bounce back in the second half.

Lee Jin-woo of Meritz Securities said the stock market should “enter a phase of recovery sometime in the first half before picking up pace moderately in the second half.”

“The policies of Trump 2.0 will take shape and begin to have a ripple effect on corresponding sectors in the latter six months,” Lee said.

The responses were made on the premise that a second Trump presidency and the Fed's extended cuts to its key interest rates will predominantly influence the course of the Korean stock market.

Trump's plans for higher tariffs and tougher immigration enforcement, including mass deportations, were regarded as negative factors for the market, while his corporate tax cuts were seen as a positive influence.

In particular, the top analysts showed mixed responses regarding the extent to which these policies would impact the Seoul stocks, after they were outlined during the U.S. presidential campaign last year.

“The second Trump presidency will have a limited impact on the domestic market,” the Mirae Asset Securities analyst said.

Hwang Seung-taek of Hana Securities echoed a similar view, saying, “The market sufficiently digested Trump 2.0 polices in advance.”

On the other hand, an analyst at Korea Investment & Securities said, “Uncertainties from Trump 2.0 are still unfolding and will present uncontrollable risks for Seoul shares.”

Yun Sok-mo of Samsung Securities emphasized the need to "monitor the varying possibilities in the implementation of Trump's tariff plan, especially in relation to U.S. inflation."

Regarding the Fed’s rate policy, the experts predicted that the rate cuts will continue, and the positive effects of the lowered U.S. lending rates will extend to the Korean stock market.

The experts anticipate that the U.S. benchmark interest rates may be lowered twice or more, with each cut most likely set at 25 basis points.

The upper range of the rates is expected to decrease to 3.5 percent by the end of 2025, down from the range of 4.25 percent to 4.5 percent at the end of 2024.

The Fed’s dovish policy is expected to prompt the Bank of Korea (BOK) to also sustain its rate cut that began in October.

According to the analysts, the BOK is likely to deliver at least two cuts, suggesting its base rate may be lowered from 3 percent to at least 2.5 percent in the 2024-25 period.

“A prolonged fall in the U.S. base rates will certainly have the biggest influence on the market,” Jeff Kim and Kim Sang-hoon, co-research chiefs of KB Securities, said.

The duo, however, warned that cooling U.S. inflation may take an upturn in the second half as higher tariffs can result in the price hikes of consumer goods, including imports.

They also warned that the immigration crackdown could lead to price increases due to higher labor costs.

Some analysts believe that Yoon's impeachment case could pose a risk to the stock market.

However, they believed that the risk would be short-lived, with limited impact, likely confined to the first quarter.

They speculated that, ultimately, the market would be shaped by the global economic cycle and other broader factors.

Concerning promising stocks to buy, shipbuilding and defense companies were recommended, as Trump seeks to strengthen partnerships with Korea in naval and commercial vessels.

Companies in artificial intelligence, autonomous driving, and satellite technology were also mentioned, amid accelerated technological innovation. Additionally, these sectors are key businesses of Elon Musk, a Trump ally.

Companies in the biotechnology and healthcare sectors also made the list of recommended stocks, as business boundaries are disappearing fast.

In the meantime, analysts were divided over the prospects for companies in the semiconductor, battery, and chemicals sectors, with skeptics arguing that intensified competition between Korea and China makes these sectors less favorable compared to previous years.