Despite adjustments in South Korea’s stock market since the nation’s main bourse crossed the 3,200-point mark this year, global investment banks JP Morgan and Morgan Stanley have painted a rosy outlook for the Kospi amid a solid corporate earnings forecast, reports showed Thursday.

JP Morgan raised its yearly Kospi target to 3,500 from the previous estimate of 3,200, saying all sectors had recorded an earnings turnaround this year except for utilities.

Especially considering the strong turnaround in the first quarter, the investment bank estimated that aggregate earnings of Kospi-listed stocks would rise above pre-pandemic levels, forecasting their net profit to increase by 103 percent this year.

“Despite negative catalysts, such as lifting of the short-selling ban, Kospi movement has remained robust year-to-date, thanks to strong support from the fundamentals side along with meaningful earnings growth. Moreover, contribution to robust earnings was well-balanced across sectors to remedy Korea’s overdependence on the tech sector,” the report read.

The investment bank also said it expected foreigners to be a key driver of overall market performance, highlighting reduced selling pressure from pension funds and lifting of the short selling ban to facilitate more inflows from foreigners.

Morgan Stanley also upgraded its outlook for the Kospi to 3,250 points from 3,100 points. It had previously downgraded the forecast to 3,100 points in February as the investment bank believed a tug of war would play out on many fronts in light of inflationary and geopolitical concerns.

Regarding the revised outlook, the investment bank said the Kospi looked to be firmly in midcycle and this situation should continue, while corporate fundamentals were expected to remain on a positive path but priced in. It further mentioned that the key stock index was likely to trade within a tight band (3,000-3,300) for the next few months.

“Despite the lifting of the short-selling ban, foreign inflows look uncertain. ... We believe that macro and emerging market fund flow conditions may not be so conducive for foreign inflows to pick up in the second quarter,” the report showed. Retail investors, however, will likely remain heavy hitters in the local market, it said.

Domestic institutional investors’ fund flow dynamics will be better than last year as pension fund selling pressure has been alleviated somewhat. But it is highly unlikely that the National Pension Service will increase its allocation weighting on domestic equities when it formulates a five-year strategic asset allocation plan in May and June, Morgan Stanley said.

After the nation’s benchmark Kospi hit the historic 3,000 points in January, it soon surpassed the 3,200-point level in the same month. Though the index got as high as 3,266.23 points during intraday trading on Jan. 11, it has recently hovered around 3,200 points, backed by offshore investors’ sell-offs. The Korean market gained 31 percent last year.

The Kospi traded bearish Thursday amid foreign and institutional selling. It closed at 3,162.28 points, down 0.34 percent from the previous session’s close, after a lackluster start. Meanwhile, the tech-heavy Kosdaq started off lower but traded higher by 0.21 percent, recording 971.13 points at the closing bell.

By Jie Ye-eun (yeeun@heraldcorp.com)