Institutions and Foreigners "Bet on a Bull Market"... Focused Shopping on Cyclical Stocks

Buying profit funds in rising markets and selling profit funds in falling markets
Focused net buying of cyclical stocks... "Earnings expectations higher than growth stocks"

[Asia Economy Reporter Lee Seon-ae] Despite the downward pressure on the domestic stock market due to the resumption of short selling and inflation concerns, institutions and foreigners have bet on a 'bull market.' They judged that the domestic stock market would unfold a performance-driven market, putting aside individual investors' concerns about a bear market.

According to the Korea Exchange on the 7th, institutions purchased as much as 36.2 billion KRW worth of the KODEX Leverage ETF the previous day. This was the second-largest net purchase among the scales bought by institutions that day. Foreigners also net purchased 8.262 billion KRW worth of this ETF. This product is operated by mixing ETFs based on the KOSPI 200 stock index futures and the KOSPI 200 index. On the other hand, institutions and foreigners net sold the KODEX 200 Futures Inverse 2X ETF, which inversely tracks the KOSPI 200 index, by 20.353 billion KRW and 23.164 billion KRW, respectively. Their investment movement of liquidating the inverse ETFs they had bought and purchasing leverage ETFs adds weight to the domestic stock market's bull market. In fact, until the resumption of short selling on the 3rd, institutions and foreigners increased market volatility and limited the bull market by flooding sell orders, but from the 4th, they have changed their shopping list.

In particular, institutions purchased as much as 52.622 billion KRW worth of the KODEX Leverage ETF on the 4th, the day after the resumption of short selling, ranking first in net purchases across both the KOSPI and KOSDAQ markets. On the same day, foreigners also net purchased 2.085 billion KRW and 1.228 billion KRW worth of the KODEX KOSDAQ150 Leverage and KODEX KOSDAQ150 ETFs, respectively. Conversely, they sold 31.667 billion KRW worth of the KODEX 200 Futures Inverse 2X ETF. They bought funds that profit in a bull market and sold those that profit in a bear market.

Moreover, institutions and foreigners are showing a shopping pattern consistent with the general securities industry's outlook that cyclical stocks will have better returns than growth stocks for the time being. Institutions purchased SK Innovation (56.239 billion KRW), Samsung Biologics (25.819 billion KRW), Korean Air (25.469 billion KRW), Korea Zinc (23.404 billion KRW), KB Financial Group (16.64 billion KRW), Hana Financial Group (14.618 billion KRW), S-Oil (14.11 billion KRW), Samsung Life Insurance (14.093 billion KRW), and Shinhan Financial Group (14.01 billion KRW) the previous day. Foreigners focused on net purchases of Kumho Petrochemical (126.986 billion KRW), LG Chem (112.223 billion KRW), POSCO (58.537 billion KRW), KB Financial Group (43.155 billion KRW), Korean Air (40.657 billion KRW), Industrial Bank of Korea (32.43 billion KRW), Hyosung TNC (31.993 billion KRW), Hotel Shilla (30.613 billion KRW), Hyundai Glovis (29.365 billion KRW), and SK Innovation (29.186 billion KRW). Finance, steel, chemical, and refining sectors are representative cyclical industries.

Profit estimates are also being revised upward, centered on cyclical industries. This appears to reflect expectations of economic activity normalization. According to FnGuide, among 103 listed companies that have announced first-quarter earnings so far (with estimates from three or more institutions), 68 companies posted operating profits exceeding estimates. Looking at the industries, they corresponded to cyclical stocks such as refining, wholesale and retail, beverages, refining, chemicals, and machinery.

Han Dae-hoon, a researcher at SK Securities, said, "The improvement in economic and corporate performance indicators is being reconfirmed," adding, "Especially, the profit estimate increases for cyclical industries such as hotel leisure, steel, energy, chemicals, and transportation are significant due to expectations from economic activity normalization or deferred orders from COVID-19."

The environment of rising inflation concerns is also favorable for cyclical stocks. Kim Sung-geun, a researcher at Korea Investment & Securities, advised, "The inflation surprise index has risen sharply this year; the U.S. index has surpassed the 2017 peak, and the global index is close to the 2017 level, indicating inflation is rising faster than expected," adding, "In an inflation phase, cyclical industries benefit more directly from economic improvement trends and rising raw material prices than growth styles, making them more advantageous."

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