Shinhan Financial Group said on Saturday it published a report titled “Conditions for a Structural Shift in South Korea’s Stock Market,” analysing structural requirements for a sustained rise in the KOSPI.

The report was prepared to review the market’s future direction as volatility has increased due to external factors such as U.S.-Iran war risks after the KOSPI broke above 6,000 points.

Shinhan Future Strategy Institute analysed the recent rise in the KOSPI as the result of a combination of the government’s value-up policy and an AI-based semiconductor supercycle.

It estimated that the value-up programme alone had an index-boosting effect of about 1,000 points. It also assessed that a return to the past 1,500 to 3,000-point range was unlikely if the trend of exiting marginal companies becomes established.

It stressed that structural improvements are needed for the KOSPI to maintain a sustained uptrend, including reduced profit volatility, a long-term investment culture and the discovery of new growth engines.

The report pointed out that about 40 percent of the KOSPI’s operating profit is concentrated in cyclical sectors such as IT and semiconductors, leading to high earnings volatility. It suggested diversifying profit models by platformising manufacturing and reshaping portfolios by streamlining non-core businesses.

It also noted that the average stock holding period for individual investors in South Korea is about 9 days, and analysed that a short-term trading-led supply-demand structure is a factor behind the market’s undervaluation. It assessed inflows of long-term funds as a positive factor as retirement pensions expand and performance-linked dividend products increase.

It also presented energy, batteries, automobiles, biotechnology, defence and shipbuilding as next-generation growth industries after semiconductors, and stressed the need for an industrial structural shift.

An official at Shinhan Future Strategy Institute said short-term volatility in South Korea’s stock market is inevitable, but the value-up policy has raised the floor. The official said further gains and a medium- to long-term upward trend in the KOSPI are possible if portfolio reshuffling, a long-term investment culture and the discovery of next-generation growth engines proceed in parallel.

The official added that a support system is needed in which finance is linked from an early stage to foster new growth industries.