Nomura sees record ROE, stronger shareholder returns and AI-led chip earnings support further market rerating
Cindy Park, head of Korea equity research at Nomura, speaks during a press briefing held in Seoul on Friday. (Choi Ji-won/ The Korea Herald)
South Korea's stock market should no longer trade at valuations closer to emerging markets, as record profitability, stronger shareholder returns and AI-led semiconductor earnings strengthen the case for a broader rerating, Nomura analysts said Friday.
Cindy Park, head of Korea equity research at Nomura, said at the brokerage's Korea Equities & Economy Media Briefing in Seoul that the Kospi remains deeply discounted despite its sharp rally and improving earnings outlook.
"Korea is now trading at multiples closer to emerging markets such as the Philippines and Indonesia,” Park said. "Given Korea's industrial structure and improving earnings, we do not think these multiples are justified.”
Nomura raised its Kospi target to 11,000 at the end of May, citing a stronger earnings outlook led by semiconductors. But Park said the case for Korea is not limited to chip earnings.
The brokerage expects Kospi earnings per share to rise 20.8 percent this year and another 27 percent next year. It also sees the market's return on equity reaching 24 percent this year, a record high for Korea, and 25 percent next year, compared with a historical average of less than 10 percent.
Even at Nomura's 11,000 target, the Kospi would trade at 13.5 times forward earnings and 2.9 times book value, Park said. Taiwan trades at about 22 times earnings and nearly five times book, while the US trades at about 21 times earnings and Japan at 17 times.
Semiconductors remain the main driver, accounting for about 67 percent of Korea's total corporate earnings and half of the market capitalization. But Park said earnings strength is broadening beyond the two dominant chipmakers.
"Semiconductors account for 67 percent of Korea's total earnings and about 50 percent of market capitalization,” Park said. "But banks, autos, shipbuilding, transformers and even consumer names are also generating meaningful earnings. Korea is not only about chips.”
Chung Chang-won, joint head of Asia-Pacific equity research at Nomura, said global investors are also starting to question whether Korean memory chipmakers should continue trading at such a steep discount to Taiwan Semiconductor Manufacturing Co.
"When we ask foreign investors whether Samsung Electronics and SK hynix should trade at three to four times book value, more of them are starting to say that does not look right,” Chung said.
Nomura has target prices of 500,000 won ($330) for Samsung Electronics sahres and 4 million won for SK hynix, which Chung described as a "midway” valuation case rather than full convergence with TSMC. If investors come to see SK hynix as deserving at least half of TSMC's valuation, that could create significant foreign demand, he said.
An electronic board at a Hana Bank dealing room in Seoul shows Tuesday's closing prices for Korea's two major chipmakers and the benchmark Kospi. Samsung Electronics closed at 322,000 won per share and SK hynix at 2,215,000 won, while the Kospi ended at 8,096.93. (Yonhap)
Park also pointed to Korea's corporate value-up campaign as another reason the valuation gap could narrow. She said 730 listed companies have made value-up disclosures so far, up from 170 at the end of 2025, while dividends rose 11 percent and share buybacks and cancellations increased about 40 percent.
"Listed companies in Korea are making far more efforts on value-up than the market may realize,” Park said. "Companies are increasingly talking about how they will align with commercial law changes, reshape their boards and improve shareholder returns.”
Still, Korea has more work to do to catch up with Japan, its key benchmark for value-up reforms, Park said. Since the Tokyo Stock Exchange began pushing market reforms in 2022, nearly 90 percent of listed companies have made disclosures. The exchange publishes a matrix every six months tracking their progress.
Ahead of Morgan Stanley Capital International's developed market review later in June, Park said foreign exchange market accessibility and registration procedures for foreign investors remain key variables in Korea's potential addition to the watch list.
"We see about a 60 percent chance that Korea will be added to the watch list,” Park said, adding that the country would typically need about two years after watch list inclusion before actual developed market reclassification.
Chung said the shift could also change the type of foreign investors looking at Korea.
"Global funds have become very US-centric after years of strong US market performance,” Chung said. "If Korea enters DM indices, Japanese investors will have another reason to look more closely at Korea.”
The rally has not come without concerns, including heightened volatility, which Chung said investors "have to live with…
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