Major foreign investment banks have revised down their targets and ratings on South Korea’s benchmark Kospi, which has been coping with market volatilities stemming from growing inflationary pressure and the prolonged Russia-Ukraine War.

Japan-based Nomura Securities lowered its investment rating on the Korean market from “overweight” to “neutral” last week, suggesting investors to hold and not buy shares.

Nomura cited the recent slowdown in the expansion of the Chinese economy, the growing exposure to the volatilities in the global stock market and the lingering policy risks following the presidential election here held in March, behind its move to adjust its rating. The ongoing global semiconductor crunch is likely to affect the local industry and ultimately their future performances, the brokerage added.

It did not make any projections on the Kospi targets and raised investment ratings on China and Indonesia to “overweight.”

JP Morgan has cut the Kospi target from an earlier estimate of 3,300 to 3,000, citing high inflation. It explained that the US Federal Reserve’s shift toward a hawkish policy, high inflationary pressure on every sector and the weakened Korean won has led to the latest downgrade.

Others, such as Goldman Sachs and Macquarie Securities, each slashed Kospi’s target from 3,350 to 3,050 and 3,200 to 2,800, respectively, early last month.

Goldman Sachs pointed to the Korean market’s high vulnerability toward a sluggish global economic growth, while saying that the Kospi will continue to see a slump, despite undergoing a brief rebound in the near future.

The major investment bank’s downgrade of the Kospi market comes as retail investors have been dumping shares, as the market turned bearish.

Retail investors’ deposits for stock investment shed some 20 trillion won ($15.9 billion) on-year to 57.5 trillion won as of last Tuesday, according to data from the Korea Financial Investment Association. Stock investment deposits refer to investors’ cash entrusted at brokerages, mostly for future stock investment.

The total deposits had nearly tripled from 27.3 trillion won as of end-2019 to 65.5 trillion won as of end-2020, driven by expanded liquidity following the outbreak of the COVID-19 pandemic here in early 2020. Investors had flocked to banks and other financial institutions to borrow money at a record-low interest rate, which the Bank of Korea had maintained from May 2020 to August 2021.

Now, with the BOK having raised its benchmark interest rate to 1.75 percent and daily average transactions on the Kospi and the secondary Kosdaq having slowed down from 20.6 trillion won in January to 16.8 trillion won last month, analysts believe the “pandemic rally” to be over.

“Retail investors’ buying spree, which has been at the center of the pandemic rally, has now weakened,” Choi Yoo-june, an analyst at Shinhan Investment said.

“The stock market has been hit by the recent rate hikes and a slowdown in stock transactions coupled with a decline in retail investors’ deposits are now being observed,” he added.

Hit by the waves of change, the market capitalization of 23 Samsung Group stocks – including Samsung Electronics -- listed on both the Kospi and the Kosdaq shed 87.8 trillion won as of Friday, compared with Dec. 30 last year. The market cap came to 641.9 trillion won as of Friday, compared with 729.8 trillion won on Dec. 30.

Market Kingpin Samsung Electronics’ shares – which accounts for some 20 percent of the Kospi’s total market cap – fell 14.7 percent to 66,800 won, compared to 78,300 won in December. 

Korea’s inflation surpassed 5 percent on-year last month in the wake of an ongoing glitch in global supply and rapid growth in domestic demand amid normalization from the pandemic, a Statistics Korea data showed Friday. Consumer prices climbed 5.4 percent in May compared to a year earlier. This posted the highest figure in more than 13 years, dating to August 2008, when 5.6 percent growth in prices was reported.