Stock Market Sensitive to Positive News... "High Possibility of Rotation Among Small and Mid-Cap Stocks"

[Asia Economy Reporter Oh Ju-yeon] Optimism is spreading in the stock market. Positive sentiment is expanding ahead of the US-China Phase 1 trade negotiations, and with the US government officially removing China from the currency manipulator list on the 13th (local time), global stock markets are reacting more sensitively to good news than bad news.

This removal from the currency manipulator list is widely analyzed as positive for the stock market, as it could lead to optimism for the upcoming Phase 2 trade negotiations.

The domestic stock market, which had been led by gains in semiconductors and large-cap stocks, is expected to see small- and mid-cap stocks potentially catch up in returns going forward.

On the 14th, NH Investment & Securities stated that the tone of the US-China trade talks and the rise in emerging market currencies have led to an improvement in the relative returns of emerging market stock markets, and analyzed that if the US-China dialogue atmosphere continues and the yuan strengthens further following the removal from the currency manipulator list, it would be favorable for emerging market stock markets.

Along with this, the recent characteristic of the domestic stock market is the continued rally of IT large-cap stocks, and a rotation of small- and mid-cap stocks is expected to accompany this.

Researcher Noh Dong-gil diagnosed, "The large-cap index has risen 1.8% this year, while the mid-cap and small-cap indices have returns of -1.1% and 0.3% respectively this year," adding, "While large-cap stocks, centered on semiconductors, have continued to rise, small- and mid-cap stocks have rotated by sector."

He predicted that a catch-up in returns for small- and mid-cap stocks could proceed in the future. He identified the main themes for small- and mid-cap stocks in January as Chinese consumption, secondary batteries, and IT materials and equipment.

Researcher Noh said, "The Chinese consumption theme is enjoying an upward trend due to expectations of the lifting of the Hanhanryeong (ban on Korean Wave) and the possibility of Chinese President Xi Jinping visiting Korea," diagnosing that "the index of stocks related to the Chinese consumption theme has outperformed the KOSPI returns since mid-December last year."

He added, "Whether the earnings outlook for Q4 and Q1 2020 meets expectations is important, but considering events, the positive sentiment can continue until March for the time being."

Researcher Noh emphasized, "Amid the strength of IT large-cap stocks, it is highly likely that rotation will continue according to sector-specific issues such as Chinese consumption, IT materials, parts, equipment, and secondary batteries."

This content was produced with the assistance of AI translation services.