Kospi more undervalued than during financial crisis, Bloomberg says

South Korea's stock market has surged nearly 80% this year, yet the Kospi's valuation remains below levels seen during the global financial crisis, according to a new analysis.

Bloomberg reported Sunday that the Kospi's 12-month forward price-to-earnings ratio stood at 6.35 as of Thursday, lower than the 6.82 recorded on Oct. 26, 2008, at the height of the financial crisis. That is nearly half the index's 52-week high of 11.98, reached on Oct. 27 last year.

The Kospi has surged 77% this year, driven by a sharp jump in earnings at Samsung Electronics and SK hynix. Unlike most bull markets, the rally has been powered not by investors accepting higher valuations but by corporate profits growing far beyond expectations.

The Kospi's 12-month forward earnings-per-share estimate has been revised up about 170% so far this year — the largest increase since 2006. EPS estimates have also been raised for 17 consecutive months, the longest such streak in more than nine years.

The Kospi's valuation is also roughly one-third that of Taiwan's Taiex index, which similarly carries a heavy weighting in semiconductor stocks.

The Kospi has long traded at a discount — the so-called "Korea discount" — due to corporate governance concerns and the cyclical earnings profile of Samsung Electronics and SK hynix, Bloomberg said. The two companies together account for more than half of the Kospi's market capitalization.

Investor views are divided. Francis Tan, chief Asia strategist at wealth manager Indosuez Wealth Management, said the current environment is "a good time to get portfolio exposure to the AI theme" for investors who do not already have heavy positions in those stocks.

Charu Chanana, chief investment strategist at Saxo Markets, struck a more cautious note, saying South Korea still needs evidence that the memory chip supercycle retains its momentum and that undervaluation alone is not a reason to buy.