Value Stocks vs Growth Stocks... Finding Leading Stocks Amid Interest Rate Hikes

[Asia Economy Reporter Ji Yeon-jin] Recently, as interest rates have risen and concerns about inflation have increased, volatility in the financial market has grown, making the domestic stock market busy searching for 'leading stocks.' Although there remains an expectation that value stocks, such as cyclical sectors, will revive and emerge as leading stocks during a rising interest rate phase, analysis suggests that existing growth stocks will continue to lead the stock market.

According to the Korea Exchange on the 8th, over the past month since the 5th of last month, the textile and apparel index in the KOSPI rose by 14.22%, recording the highest increase. Insurance rose 13.04%, and steel and metals followed with an 11.97% increase. Non-metallic minerals (9.90%) and banks (7.93%) also surged significantly.

Although the KOSPI, which surged sharply at the beginning of the year, has been in a correction phase for over a month, only cyclical stocks related to inflation have risen sharply due to the rise in U.S. Treasury yields and commodity prices. The KOSPI's increase rate over the past month was only 0.44%. Lee Kyung-min, head of the investment strategy team at Daishin Securities, said, "There is an expectation that value stocks will emerge as leading stocks in the rising interest rate phase," but he also pointed out, "For value stocks to emerge as leading stocks, the upward trend of interest rates must continue, but past patterns were different."

Daishin Securities examined U.S. bond yields during two periods of inflation from the second half of 2009 to the first half of 2011 and from 2015 to early 2018. In 2010, the U.S. consumer price index (CPI) reached 3.9%, but the 10-year Treasury yield fell to -2% at that time.

Also, during the inflation phase in 2017, cyclical stocks and financial stocks contributed to the KOSPI's rise, but the leading sector was IT, which lowers the possibility of future leading stocks being value stocks. Sectors previously considered value stocks, such as automobiles, home appliances, and secondary batteries, transformed into growth stocks after their prices surged significantly since June last year, contributing 42.3% to the rise in value stocks. Lee said, "In the future fundamental market, value stocks may support the KOSPI's rise in the second quarter, but it will be difficult for them to establish themselves as leading stocks," adding, "Rather, profits in existing leading sectors such as semiconductors, automobiles, secondary batteries, transportation, and internet sectors are improving, and based on this, they are expected to lead the market."

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