"Unstable Jisu" Look at Sectors with Foreign Supply Gaps · Look at Stocks Institutions Will Buy Again

Weak Foreign Labor Supply in Transportation Sector... Top Pick Stock is HMM
Chemicals Gain Attention with China's Economic Recovery... Focus on Kumho Petrochemical
Despite Index Overvaluation Debate, Demand for Earnings Improvement Stocks Expected to Rise

[Asia Economy Reporter Lee Seon-ae] The domestic stock market, which resumed after the Lunar New Year holiday, is showing signs of entering a 'breather' phase. The selling spree by institutional investors is intensifying supply-demand concerns, and the return positions of foreign investors are not clearly evident. As the domestic stock market enters a phase of cooling down from overheating, it is expected to consolidate within a range and then gather momentum again in line with a clear improvement in corporate earnings. Accordingly, experts believe that buying strategies focusing on sectors with relatively low foreign demand and stocks likely to be repurchased by institutions are effective.

According to the Korea Exchange on the 18th, the KOSPI index closed at 3,133.73, down 29.52 points (0.93%) from the previous day. This was due to net selling by institutions amounting to 1.2748 trillion KRW. Including this day, there have been a total of 12 trading days this year where institutions have net sold over 1 trillion KRW, with cumulative net purchases totaling 24.5906 trillion KRW. Foreign investors also net sold 605.6 billion KRW the previous day, while individuals net bought 1.8584 trillion KRW.

The KOSPI trading volume recorded 16.8461 trillion KRW, the lowest this year. Trading volume is generally interpreted as an indicator of the market’s strength. Securities firms diagnose that the domestic stock market is currently in a phase of cooling down from overheating, and the resumption of a bull market will occur when corporate earnings that justify the index are confirmed.

Accordingly, attention has been advised on the chemical and transportation sectors. Researcher Lee Jae-seon of Hana Financial Investment said, "When raw material prices rose and China’s economic recovery was observed simultaneously, the chemical sector showed good returns, so it is highly likely to show an upward trend. The coexistence of expectations for growth in the secondary battery market is a factor that foreign investors may view the chemical sector positively," adding, "Companies within the chemical sector with a gap in foreign investor demand include Lotte Chemical and Kumho Petrochemical." These companies are judged to have slow improvement in foreign investor demand since October despite upward revisions in earnings estimates.

The transportation sector also warrants attention. Although the transportation sector is gradually seeing upward revisions in earnings due to increased cargo volume following the global economic recovery after COVID-19, foreign investor demand remains relatively weak. Lee diagnosed, "Among companies in the transportation sector, HMM stands out as having a significant gap in foreign investor demand compared to upward earnings revisions."

Since institutions typically sell based on asset allocation strategies and then net buy stocks supported by earnings, it is advised to pay attention to companies with upward revisions in earnings forecasts among those heavily sold or held. Researcher Lee Kyung-soo of Hana Financial Investment said, "Even if there is debate about the index being overvalued, demand for earnings improvement stocks will increase," emphasizing, "The index is not in a highly volatile state, but rather than trying to predict it, increasing the weighting of stocks with improving earnings will be a meaningful strategy."

Hana Financial Investment identified the top sectors in terms of changes in operating profit estimates for this year by KOSPI sector as display, transportation, software and services, and securities. Companies with significantly increased operating profit estimates compared to three months ago include LG Display, Samsung Life Insurance, HMM, Kumho Petrochemical, SK Chemicals, OCI, and Kiwoom Securities.

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