[High Kick Han Stock Market] Growth Stocks Over Value Stocks

Large Caps Rose on Recovery Hopes
But Uncertainty Sparks Strength in Untact and Bio Stocks

[Asia Economy Reporter Minji Lee] As concerns about the resurgence of the novel coronavirus infection (COVID-19) grow, investors' interest is expected to shift back to non-face-to-face (untact), bio, and secondary battery-related stocks. Although large-cap value stocks showed strength amid rising expectations for economic recovery since the end of May, growing economic uncertainty is expected to increase interest in growth stocks that led the stock market in March and April.

According to the Korea Exchange on the 19th, the KOSPI, which had risen to 2195.69 last week based on closing prices, dropped 7.5% this week to 2030.82. The KOSPI had risen about 6% from last month to early this month but showed a significant decline this week. Seungyoung Park, a researcher at Hanwha Investment & Securities, explained, "The sharp decline and rise in the stock market earlier this week should be interpreted as a signal that the phase of the stock market is changing," adding, "Attention will focus on growth stocks that are free from restructuring."

In the stock market, growth companies have received high premiums due to their scarcity during periods of high economic uncertainty and slowing growth. Since the spread of COVID-19, growth stocks centered on untact sectors in major countries have driven stock market gains. Conversely, during economic recovery phases, funds tend to flow into value stocks rather than growth stocks. This is because most companies record high growth during recovery periods, causing the premium enjoyed by growth stocks to disappear.

Since the end of May, when expectations for economic recovery significantly increased, large-cap value stocks have driven the KOSPI upward. Investment funds that had been concentrated in small and mid-cap untact and bio stocks quickly shifted to value stocks focused on traditional industries such as Hyundai Motor and KB Financial Group. Comparing returns in the first week of June, value stocks rose 8.6%, while growth stocks increased by 7.3%, showing value stocks outperforming growth stocks.

Sangho Kim, a researcher at Shinhan Investment Corp., said, "The rise in value stocks was prominent as expectations for economic recovery increased following the announcement that non-farm payrolls in the U.S. increased by 2.5 million compared to the previous month in May," adding, "The production cut by OPEC+ (Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) also had a positive impact as WTI crude oil prices rose to around $40."

However, a sustained rise in value stocks is expected to be difficult. This is because doubts about the speed of economic recovery are emerging as the second wave of COVID-19 becomes visible in the U.S. and South America. Additionally, profit-taking sales are appearing due to ongoing conflicts between the U.S. and China and North Korean risk factors.

Yeeun Kim, a researcher at IBK Investment & Securities, explained, "The upward trend is seen mainly in sentiment indicators, but real economic indicators have not yet shown signs of recovery," adding, "Considering the economic situation has not recovered as quickly as expected, it should be seen as the start of a correction." She further diagnosed, "During the correction phase, growth stocks are expected to continue their trend rather than value stocks, and recently, the bio sector has stood out due to expectations for COVID-19 treatments and vaccine development."

The fact that interest rates have stabilized downward also supports the rise of growth stocks. If low interest rates are maintained over the long term, the premium assigned to stock prices will be higher than before. This means concerns about the premium received by growth stocks decrease as the low-interest-rate trend continues.

Accordingly, the securities industry advises focusing on sectors such as internet, gaming, bio, and secondary batteries. Furthermore, there are opinions that these sectors could establish themselves as the next leading stocks.

Jung-hoon Seo, a researcher at Samsung Securities, forecasted, "Untact-related stocks, which had been taking a breather, will show relative superiority based on the clarified low-interest-rate trend," adding, "Unlike traditional manufacturing and service industries, the fact that sales have decreased less due to COVID-19 will further increase investors' interest." Eun-taek Lee, a researcher at KB Securities, said, "Assuming economic activities resume, interest in value stocks such as IT and automobiles will increase," adding, "Once some rotation phases end, a rally of leading stocks will begin, and future leading stocks will come from growth stocks."

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