The South Korean stock market has been bullish in recent weeks thanks to abundant liquidity here and abroad given efforts to boost the coronavirus-battered economies. The nation’s main bourse Kospi has recovered to pre-coronavirus levels while the tech-heavy Kosdaq market has recently hit a new high.

Although some experts warn of another big drop in the stock market, it is widely forecast that with the ample liquidity the crash will be more subdued than in March.

“The stock market indexes have recovered to the levels before the outbreak of COVID-19, triggering worries that they have already reached their peak,” said Moon Nam-joong, an analyst from Daishin Securities.

“Driven by stimulus packages rolled out by governments around the world, like in the US and Germany, and progress in development of vaccines, however, the stock market will likely continue to be on an upswing,” the analyst added.

The Kospi’s overall price-to-earnings ratio, which shows the valuation of stocks, stands at 25 times, the highest since it hit a high of 25.31 in 2002. A higher PER means that stocks are more expensive compared to their underlying value.

In stark contrast, businesses, both large and small, have been still reeling from downturns exacerbated by the impact of the new strain of coronavirus. The listed companies’ combined net profit last year dropped 52.8 percent on-year to 52.4 trillion won ($43.5 billion). In the first quarter, when the nation’s economy bore the brunt of the virus crisis, the figure fell 47.8 percent on-year to 11.3 trillion won.

Because of the gap between the stock indexes and the real economy, there are mixed views on how the stock market will fare over the rest of the year. Some critics said the market lacks an additional momentum for growth while others claimed businesses will get back on track as soon as the ongoing development of vaccines nears completion

During the recent bullish market, stocks in the biotechnology and contactless services segments saw their presence increase at a dramatic pace, according to Korea Exchange, the nation’s sole securities exchange operator. More specifically, three sectors out of 16 industries categorized by the exchange -- health care, media and entertainment and logistics -- increased their foothold in the stock market.

Compared to the end of December, the entire market cap of health care companies, including Samsung Biologics and Celltrion, increased 38.3 percent based on their closing price on June 5, and the companies’ proportion in the entire stock market grew 3.3 percent to 12.2 percent.

The media and entertainment firms, including Kakao, Naver and NCSoft, accounted for 7.5 percent, up 1.5 percent, while logistics firms, such as Hanjin KAL, took up 1.7 percent, up 0.1 percent.

In the meantime, foreign investors, who wield a significant influence on the domestic stock market, went on a selling streak for the fourth straight month in May while buying public bonds.

They sold domestic stocks worth 4.06 trillion won last month. Those from the US were the largest net sellers with a net 1.8 trillion won of stocks followed by investors from the UK and Cayman Islands. Saudi Arabian and Chinese investors were some of the largest net buyers.

Stocks held by foreign investors stood at 520.6 trillion won, which accounted for 30.9 percent of the entire market cap.

Foreigners extended their buying spree in the local bond market for the fifth straight month as well by purchasing a net 2.82 trillion won worth of local bonds last month, according to the Financial Supervisory Service.

“Compared to the nation’s fiscal solvency and credit ratings, investors seem to consider the bond yield to be relatively high,” an FSS official said.

By Kim Young-won (wone0102@heraldcorp.com)