[Good Morning Stock Market] "Additional Rise Possible in Domestic Market This Year"…Expecting Favorable US Investment Environment

On the 8th, the KOSPI index (Photo by Korea Exchange)

[Asia Economy Reporter Kum Boryeong] An analysis has emerged suggesting the possibility of further gains in the domestic stock market this year. Despite concerns over overheating and valuation burdens, changes in the global macro environment have led to a revaluation of Korean asset markets. Additionally, favorable domestic supply and demand conditions have joined in. Expectations are also rising that the investment environment for U.S. stocks will be favorable.

◆ Kyungmin Lee, Researcher at Daishin Securities = The year 2021 is expected to mark the beginning of the 'KOSPI 3000' era. Breaking through KOSPI 3000 is not the end but the start. Korea has the strongest momentum in economy and corporate earnings through 2021. As the global economy and trade recover, improvements in Korea’s economy, industry, and financial markets will accelerate. Of course, there are significant short-term concerns about KOSPI overheating and valuation burdens. However, these can be sufficiently overcome if a macro and fundamental-driven market unfolds. If economic and corporate earnings forecasts are revised upward, the upside potential for KOSPI increases.

The key going forward is whether domestic and international economies and corporate earnings can improve, and if so, by how much. In this regard, attention is focused on the global manufacturing sector. Demand recovery and inventory restocking in major global countries centered on the U.S. are expected to provide stronger-than-anticipated support to global manufacturing and trade improvements. This will accelerate export recovery in emerging Asia and enhance the attractiveness of Korea’s economy, industry, and financial markets. This is the core logic behind the forecast of KOSPI strength and relative outperformance against global stock markets in 2021.

The consensus for KOSPI corporate earnings in 2021 and 2022 has already entered an upward revision cycle. Since November, EPS forecasts for 2021 and 2022 have been revised upward by 2.5% and 4.9%, respectively. The macro environment changes, such as global manufacturing sector improvement and Korean export recovery, have begun to be reflected in earnings. The future trend of Korean corporate earnings forecasts is expected to resemble that of 2017. During the upward revision phase from 2016 to 2018, the confirmed net profits for 2017 and 2018 were 12.6% and 6.85% higher than the November 2016 consensus, respectively. Amid the unprecedented economic downturn caused by COVID-19, strong policy and liquidity momentum flowed in. In 2021, policy and liquidity effects are expected to support economic recovery and earnings improvement. Additional economic stimulus policies and liquidity supply will continue. It is expected that earnings forecast upward revisions in 2021 will be stronger than those from 2016 to 2018.

However, caution is warranted as optimistic expectations have already been largely priced in, and valuation burdens are high, creating latent pressure for correction. Due to the sharp rise at the end of 2020 and early 2021, short-term overheating, valuation burdens, and fatigue from 10 consecutive weeks of gains have accumulated in KOSPI. Historically, more than nine consecutive weeks of gains in KOSPI signaled a strengthening of the mid-to-long-term uptrend, but whether the market takes a breather or continues further depends on short-term corrections. Continuous rises without rest may be good in the short term, but the side effects of excessive increases should be kept in mind.

However, if the global accommodative policy stance and liquidity momentum remain effective, and the global economic and corporate earnings recovery and momentum strengthening phase in 2021 hold, corrections should be viewed as opportunities to increase exposure. If uncertainty about the speed of economic and earnings improvements triggers investment sentiment and supply-demand concerns, this will serve to reduce overheating and valuation burdens and narrow the gap with fundamentals, rather than signaling a trend reversal.

◆ Younghan Lee, Researcher at Daishin Securities = The U.S. stock investment environment in 2021 is expected to be favorable, but it has become difficult to find attractive investment destinations due to valuation pressures. Following news of COVID-19 vaccine distribution and agreements on additional economic stimulus measures, factors that lifted the stock market have become visible, and stock prices have largely priced in expectations for economic recovery. It is important to avoid overly optimistic and one-sided strategies. A portfolio mixing growth and value stocks appears effective for U.S. stocks this year, and it is necessary to use this as an opportunity to increase investment in COVID-19-affected stocks. As industrial restructuring is rapidly progressing post-COVID-19, demand for growth stock investments is expected to continue expanding. In particular, digital transformation and eco-friendly sectors, where policy momentum may be highlighted, should form a major part of the portfolio. Additionally, some stocks among COVID-19-affected companies expected to have strong earnings recovery should be included.

Appropriate diversification and sector allocation are crucial at this point. Cyclical stocks have become more attractive in terms of recovery strength and speed as earnings shocks from COVID-19 bottom out, but careful stock selection is necessary. If price correction pressure increases due to overall stock market valuation burdens, companies with unclear earnings visibility will need to slow down. The more optimistic views spread in financial markets, the more necessary it is to maintain a cool-headed perspective.

One theme to watch in 2021 is mobile payment. As COVID-19 prolongs, the consumption and distribution ecosystem is changing. With consumption shifting from offline to online, e-commerce has emerged as a key shopping channel.

Another theme to watch is eco-friendliness. With Biden’s election and the Democratic Party holding majorities in both the U.S. House and Senate, the pace of eco-friendly transition policies is expected to accelerate. Since key pledges include green regulations (such as raising greenhouse gas reduction targets and strengthening environmental standards), transition to clean energy, and eco-friendly infrastructure construction to build a low-carbon, eco-friendly society, related industries are expected to be reappraised.

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