What Are the Key Leading Stocks to Watch in a Bear Market?

[Asia Economy Reporter Song Hwajeong] As confirmed cases of the novel coronavirus infection (COVID-19) surge, negative impacts are also appearing in the stock market. With the COVID-19 spread expected to keep the market weak for the time being, it seems necessary to focus on leading stocks to respond to the bearish market.

Meritz Securities has presented seven key leading stocks to prepare for a short-term additional decline in the KOSPI: Samsung Electronics, SK Hynix, Samsung SDI, Samsung Electro-Mechanics, NAVER, Kakao, and NCSoft.

Researcher Kang Bongju of Meritz Securities explained, "When forecasting a medium-term rise and short-term weakness in the stock market, the most textbook and effective response strategy is to compress the portfolio focusing on core leading stocks." He added, "These seven stocks, which are the core leading stocks of the Korean stock market, have shown the largest improvements in 2020 earnings and return on equity (ROE) among representative stocks by industry, and their stock price uptrends are being maintained." Kang said, "These stocks have continued to see foreign buying and new highs regardless of the market decline even amid recent COVID-19 concerns," adding, "These stocks are likely to maintain relative strength even if the KOSPI falls further to some extent."

Although there are some differences by stock, these seven stocks have maintained price strength compared to the KOSPI since 2019. Researcher Kang said, "Whether these seven stocks maintain their price uptrend is important for checking the medium- to long-term driving force of the KOSPI in the future," emphasizing, "It is difficult for the price index to rise without leading stocks."

With short selling transactions significantly increasing since the beginning of the year, there is an opinion that risks with high short selling ratios need to be addressed from a high-risk stock perspective. Researcher Kang said, "The significant increase in short selling transactions since the beginning of the year is a burden," analyzing, "In the past, during phases of KOSPI growth slowdown, increased short selling often led to a market downturn." Stocks with high short selling ratios over the past month include AmoreG, Hanon Systems, AmorePacific, Ottogi, Innocean, S-Oil, Orion, Industrial Bank of Korea, Woori Financial Group, GS Retail, Hyundai Heavy Industries, CJ Logistics, Hanssem, Hyosung, Lotte Chemical, Hyundai Marine & Fire Insurance, Hyundai Wia, Doosan, Samsung Heavy Industries, and Medytox. Kang said, "When stocks with high short selling ratios release favorable news such as earnings surprises or order announcements, short covering can cause sharp price rebounds," but added, "However, when the overall short selling transactions increase along with weakening market fundamentals as recently, it is advantageous to respond from a high-risk stock perspective."

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