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[November] Identifying outperformers

Solid earnings momentum continues

Korean companies continue to show improved earnings momentum. The consensus for KOSPI-listed companies’ aggregate 3Q25 operating profit stands at W78tr (+24% YoY, +25% QoQ), which would mark an all-time quarterly high. Among companies that have already reported results (representing 28% of the index’s total market cap), operating profit has exceeded the consensus by 12%, buoyed by Samsung Electronics’ (SEC) earnings surprise. (Excluding SEC, operating profit is 3.6% above the consensus.)

The trend in earnings forecast revisions is also positive. Over the past month, the consensus for Korean companies’ aggregate operating profit has been revised up by 1.8% for 2025 and 7.7% for 2026, led by the semiconductor sector; the figure for 2026 now stands at W368tr (+30% YoY). Korean companies now display the strongest earnings momentum among major global markets, and encouragingly, cash flow is improving in tandem with earnings.

Despite the recent sharp rise in the KOSPI, we believe valuation remains attractive. The index is currently trading at a 12-month forward P/E of 11.8x and 12-month trailing P/B of 1.34x. We expect the upward trend in P/B to continue, supported by government efforts to boost the stock market as well as expanded shareholder returns and improving ROE across listed companies. Additionally, continued earnings upgrades for semiconductors could push the KOSPI’s P/E lower. For reference, the KOSPI’s five-year average 12-month forward P/E is 10.6x.

Market concentration appears justified

We expect the Korean stock market to extend its gains, supported by strong earnings momentum, attractive valuations, and favorable fund flows from foreign and domestic institutional investors. Notably, foreign investors have net bought roughly W21tr of KOSPI shares since end-April and still appear to have ample buying capacity (compared with past cycles).

Meanwhile, some have voiced concerns that the market has become too concentrated in certain sectors and styles. Historically, volatility has increased when gains were driven by a narrow set of stocks. While it is true that the proportion of sectors and stocks outperforming the KOSPI has declined, we believe that the current concentration is more justified as it is led by sectors with strong earnings outlooks. Indeed, the sectors displaying the highest concentration scores―semiconductors, IT hardware, batteries, shipbuilding, and machinery (including defense and power equipment)―are all seeing upward earnings revisions, suggesting that they will continue to drive the overall market.

November strategy: Current leaders + biotech, financials, and holdcos

In November, we expect the market to continue to be led by sectors showing strong earnings momentum―i.e., semiconductors, batteries, shipbuilding, defense, and power equipment. In addition, we recommend increasing exposure to biotech, financials, and holding companies.

While global biotech stocks have rallied recently, domestic biotech stocks have underperformed. The KOSDAQ (with its high proportion of biotech stocks) has also underperformed the KOSPI by 10%p over the past month. However, conditions appear favorable for the biotech sector through year-end, as 4Q is traditionally the peak season for biotech deals, and monetary policy uncertainty is easing. Additionally, sentiment on financial and holding companies (which are generally active in returning value to shareholders) will likely improve due to: 1) the potential introduction of separate taxation on dividends; and 2) expectations related to the third Commercial Act amendment bill, which includes a proposal to mandate treasury share cancellations. <Table 1> below provides our list of stocks to watch in November, while <Table 2> identifies companies with significant treasury share holdings and a history of buybacks/cancellations.