[Good Morning Stock Market] "Growth Stocks Overvaluation Debate Continues... Depends on Tesla Q2 Earnings"

Growth Stock Overvaluation Debate Continues... Cyclical Stocks Rise
If Tesla Records Q2 Profit, Growth Stocks Gain Momentum
Advice to Increase Focus on Samsung Electronics, Kumho Petrochemical, LG Electronics

[Asia Economy Reporter Minji Lee] On the 21st (local time), the U.S. stock market closed mixed as technology stocks fell despite the European Union (EU) reaching an agreement on additional stimulus measures. The S&P 500 and Dow Jones indices rose, but the Nasdaq index declined. This was due to profit-taking selling in non-face-to-face (untact) related stocks. The market is focusing on Tesla's second-quarter earnings. Amid ongoing debates about growth stock bubbles, if Tesla can completely dispel concerns about its earnings, it is believed that growth stocks could gain momentum in their price increases.

[Image source=AP Yonhap News]

◆ Sangyoung Seo, Kiwoom Securities Researcher = In the U.S. stock market, non-face-to-face (untact) related stocks fell while cyclical stocks rose. The market reacted to vaccine clinical data, lifting energy and financial sectors, which helped boost the indices. Untact-related stocks that surged the previous day saw selling pressure and declined.

The EU's agreement on a 750 billion euro COVID-19 relief fund influenced the index rise. Although conflicts over the size of subsidies continued, after the possibility of an agreement was raised the previous day, Nordic countries conceded, leading to the agreement. International oil prices also showed strength, highlighting the rise of related companies. Occidental (10.96%), ConocoPhillips (5.92%), and other oil-producing companies surged, and financial stocks also rose together.

However, uncertainty over additional U.S. unemployment benefits limited the index's rise. The Republican House Majority Leader stated in an interview that the likelihood of an agreement by the end of July is low. Although he mentioned an agreement could be reached in the first week of August, the market judged concerns to be high, leading to selling pressure.

[Image source=Yonhap News]

◆ Jaeyoon Lee, SK Securities Researcher = Tesla's second-quarter earnings, to be announced at 6:30 a.m. on the 23rd, are expected to determine the direction of growth stocks. Amid ongoing debates about the overvaluation of growth stocks, if Tesla, which is being tested for earnings concerns, posts a profit, it is expected to further solidify its position as a leading stock. Tesla's stock price has risen 280% since the beginning of the year, and especially since the end of June, the stock price surpassed $1,000, rising 71%.

If Tesla is included in the S&P 500, index fund inflows tracking the index are expected to push the stock price even higher. The amount of funds tracking the S&P 500 is about $5 trillion, and Tesla's weighting in the index is expected to be 0.85%. Accordingly, the inflow into Tesla is estimated to be $39 billion.

However, if Tesla records a loss, concerns about valuation burdens will resurface, providing a pretext for profit-taking in growth stocks. Recently, indicators such as rising gold and copper prices suggest an increase in cyclical stocks, indicating that the economy is recovering from the impact of COVID-19.

◆ Seungjin Shin, Samsung Securities Researcher = This year, leading stocks in the stock market have been those represented by bio, battery, internet, and gaming sectors. As the untact culture spread due to COVID-19, the weight of these sectors based on domestic market capitalization expanded from 10% at the beginning of the year to 16%. However, due to the sudden rise in stock prices, the price burden on these sectors has increased.

Therefore, going forward, attention should be broadened to stocks that can complement the sluggish price movement of growth stocks. While they cannot be compared to leading stocks, considering their relatively lower price increases, stocks with high growth appeal such as Samsung Electronics, SK Innovation, LG Electronics, Kumho Petrochemical, SK Chemicals, Hyundai Mobis, and Hanssem deserve more attention. These stocks hold materials such as eco-friendly initiatives, corporate restructuring, and initial public offerings, which are expected to transform them into growth companies.

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