[Good Morning Stock Market] Transition from Liquidity-Driven to Earnings-Driven Market... Focus on SK Biopharm Listing

[Asia Economy Reporter Oh Ju-yeon] The stock market, which had sharply risen based on abundant liquidity, is showing a mixed trend. It is analyzed that the index will focus on fundamentals (corporate earnings) for the time being and may show differentiated flows by sector and stock. Along with this, SK Biopharm, regarded as a major player in the initial public offering (IPO) market, is also one of the interests on the 2nd. SK Biopharm will start full-scale trading together with the opening price of the Korea Exchange at 9 a.m. on that day. During the subscription for general investors on the 23rd and 24th of last month, the deposit amount reached 31 trillion won, marking the largest scale among IPO public offerings to date.

◆ Lee Kyung-min, Researcher at Daishin Securities = Since March, the dog (stock price) ran ahead of the owner (fundamentals). In June, the dog (stock price) ran too far ahead, and the taut dog leash was recognized. July is judged to be the period when the dog returns to the owner (fundamentals). Expectation sentiment cannot be the driving force for a trend rise, and due to the spread of COVID-19 and escalating US-China conflicts, doubts about the speed of fundamental improvement may increase. The Q2 earnings season will also heighten investors' caution.

The KOSPI band for July is suggested to be between 1940 and 2170 points. The KOSPI, which ran ahead of fundamentals, is thought to find it difficult to level up further beyond the 12-month forward PER peak of 12.39 times (2180 points) since the financial crisis (2009). The lower bound of KOSPI is fixed at 1940 points, which is 0.8 times based on confirmed earnings (an important support zone before COVID-19) and corresponds to a 38.2% retracement level of the rise from the bottom.

However, what is clear is that the dog and the owner are always heading toward the same destination. Although the owner may be slow, they are walking forward and will continue to do so. Daishin Securities forecasts that the upward trend aiming for KOSPI 2480 points will continue until the end of the year. With liquidity and policy momentum effective to overcome the COVID-19 shock, there is a high possibility that the global fundamental improvement trend will join in the second half of 2020.

The issue is the speed and the investment sentiment recognizing it. It is unlikely that the dog and the owner will immediately turn back on their path. The July correction of KOSPI is judged as a buying opportunity. A strategy to increase weighting is recommended during corrections in IT (semiconductors, software, secondary batteries) and pharmaceutical-biotech sectors.

◆ Seo Sang-young, Researcher at Kiwoom Securities = The US ISM manufacturing index, closely related to Korean exports, was announced at 52.6, exceeding the baseline of 50, raising expectations for US economic recovery, which is positive for the Korean stock market. Additionally, the ADP private employment report results partially eased concerns about the employment report to be released this evening, which is favorable. Positive factors related to COVID vaccine clinical data are also expected to help improve investment sentiment.

However, the key point is ultimately fundamentals. Recently, global stock markets, including the US stock market, are changing into markets that respond sensitively to indicators and earnings announcements rather than peripheral issues. Sector differentiation is also becoming very clear. Untact-related sectors such as IT home appliances, IT hardware, and healthcare tend to be revised upward in Q2 and Q3, whereas cyclical stocks including hotels, leisure, and steel are continuously being revised downward. Considering this, the Korean stock market is expected to focus on stocks with earnings improvements amid sector differentiation.

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