"In a Market Adjustment, Approach by Industry... Focus Needed on Defensive, Healthcare, and Growth Stocks"

On the 12th, global stock markets froze due to concerns over the resurgence of COVID-19, causing the KOSPI index to start with a plunge of over 4%. Dealers are busy working in the dealing room of Hana Bank in Euljiro, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Geum Bo-ryeong] As concerns over the resurgence of the novel coronavirus infection (COVID-19) grow, the domestic stock market has entered a correction phase, increasing interest in response strategies. Analysts suggest that a differentiated approach by sector is necessary.

With the U.S. stock market plunging 6% and global markets falling together, the domestic stock market is highly likely to slow down. On the morning of the 12th, both the KOSPI and KOSDAQ started the session in a downward trend, showing a decline of about 3%.

Labor Gil, a researcher at NH Investment & Securities, diagnosed, "Due to concerns over the second wave of COVID-19 in the U.S., the domestic stock market has no choice but to slow down." In the U.S., on the 10th (local time), Texas recorded 2,504 new confirmed cases, the highest since the COVID-19 outbreak. Additionally, on the 11th, countries like India and Pakistan set new daily records for confirmed COVID-19 cases, negatively impacting investor sentiment.

As the domestic stock market inevitably slows down, a strategy that approaches sectors differentially rather than betting on the index itself is considered effective. Researcher Noh explained, "Doubts about economic recovery and the possibility of index slowdown make defensive stocks a relatively better alternative. Defensive sectors such as utilities, telecommunications, and consumer staples underperformed the benchmark in monthly and weekly returns, indicating they were sidelined during the rising phase driven by economic improvement expectations, which increases the likelihood of them catching up in future returns."

Attention is also needed for healthcare, which performed relatively well during past COVID-19 correction phases. The impact of COVID-19 on the pharmaceutical and bio sector is analyzed positively. Unlike other sectors, pharmaceutical companies have not been significantly affected in earnings, and diagnostic companies have posted record-high earnings through exports. New drug development companies have also continuously attracted investor attention due to the prolonged COVID-19 pandemic.

Growth stocks, which have relatively solid earnings forecasts and can benefit from low interest rates, are also expected to maintain a stable trend. The U.S. Federal Reserve (Fed) announced at this month’s Federal Open Market Committee (FOMC) meeting that it will maintain near-zero interest rates through 2022. Kim Soo-yeon, a researcher at Hanwha Investment & Securities, emphasized, "The Fed’s zero interest rate signal is favorable for growth stocks," adding, "It lowers the discount rate on future cash flows, increasing the multiples of growing companies." She further noted, "Recently, liquidity has been supplied to the stock market, causing cyclical companies, which face difficulties in improving business conditions in the short term, to see stock price increases, but in the long term, the environment favors growth stocks." Researcher Noh added, "Particularly, attention is needed for electrification-related sectors centered on domestic secondary battery companies that can demonstrate growth even when the index falls."

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