South Korea’s benchmark Kospi faces a long transition to a bullish rally, during which investors will have to navigate uncertainties complicated by supply bottlenecks, a rate hike and a presidential election, according to Goldman Sachs and Morgan Stanley.

Goldman Sachs cut the Kospi target to 3,350 from 3,700, changing its view on Korean shares from “overweight” to “marketweight,” saying it would be hard to expect market-beating corporate earnings again next year.

The local market is sensitive to global economic changes, it added.

Morgan Stanley said that the Kospi would stay between 2,750 and 3,150, down from the previous range of 2,800 and 3,200. The investment bank cited supply shortages and weak corporate earnings.

Until the market finds momentum to drive up stocks after the March presidential election that entails new economic policy and regulations, investors will have to wait on returns in a sluggish market, according to Morgan Stanley.

JPMorgan, which said that the Kospi will climb as high as 3,300, pointed to shrinking trade by retail investors that propped up a Kospi rally early this year, describing the momentum as being “pressured” amid the omicron variant spread and the US Fed’s sooner-than-expected tapering of market support.

The investment bank added that retail investors no longer focus on local shares because they can make returns on foreign shares or seek alternative investments altogether, saying they will show a similar pattern of trade next year.

Meanwhile, the Korea Exchange said Thursday that the daily trading volume this month fell to 10 trillion won ($8.4 billion), the lowest since May 2020, when it was 9 trillion won. 

“Retail investors are making exits and that’s affecting trade,” a Korea Exchange official said. In September, retail investors made up almost 60 percent of those buying Kospi shares, but they now account for 50 percent. 

Kim Seung-hyun, head of research at Yuanta Securities Korea, said the Kospi could extend a downturn until the year runs out but noted that it would soar back next year as supply disruptions untangle.

Korean shares will outperform its global peers next year on upbeat corporate earnings, he added, referring to tech giant Samsung Electronics, which he said, would lead the hike.

Goldman Sachs said the chip industry will post strong earnings next year, while Morgan Stanley predicted higher earnings in banking and gas industries.