Historic Record Highs and the Era of Thousand-Point Drops: "No Leading Industry... It's All About Individual Performance Battles"

[Asia Economy Reporter Lee Seon-ae] Although the domestic stock market is on the rise, with the KOSPI index hitting a historic high and the KOSDAQ index re-entering the 1000 range, there is no leading sector. Accordingly, it seems necessary to establish a 'guerrilla warfare (各個戰鬪)' investment strategy focused on sectors and stocks with earnings momentum.

According to the financial investment industry on the 21st, the expected KOSPI range from major securities firms this week is 3180 to 3300. Korea Investment & Securities suggested 3200 to 3300, and NH Investment & Securities proposed 3180 to 3300. While the possibility of a trend decline in the stock market is low and a smooth upward trend is expected, the general view is that it is difficult to find a leading sector.

Chae Hyun-gi, a researcher at Cape Investment & Securities, said, "The domestic stock market level is showing a favorable level, but no leading sector has emerged, and rotation trading continues," adding, "The untact sector, which was strong in 2020, is gaining attention again, but this is considered short-term, and attention should be paid to sectors and stocks maintaining earnings improvement as the second quarter ends."

He predicted that the consumer discretionary sector would be positive. This is based on the expectation of reopening continuing until July, when the domestic vaccination rate, currently at about 30%, enters the 50% range. Kim Dae-jun, a researcher at Korea Investment & Securities, also said, "From a style perspective, I still prefer consumer discretionary," adding, "With the social distancing reform plan taking effect from July 5, people are expected to focus more on consumption, so it is necessary to take the lead in consumption-related sectors."

There is a strong voice that continuous interest should be paid to sectors with upward revisions in earnings estimates. Lee Jae-man, a researcher at Daishin Securities, said, "Considering the increase in the proportion of operating profit in the second half for semiconductor and IT hardware sectors among cyclical growth stocks, there will be opportunities for stock price rises," and evaluated, "Healthcare and gaming, which are closer to structural growth stocks, are also expected to see an increase in operating profit proportion in the second half, creating a favorable environment for stock price rises."

Mirae Asset Securities Research Center identified undervalued sectors (those with upward revisions in earnings forecasts compared to KOSPI but low stock price increases) such as energy, chemicals, steel, trading companies, and insurance. Overvalued sectors (those with downward revisions in earnings forecasts compared to KOSPI but high stock price increases) included construction, architecture, machinery, transportation, cosmetics, apparel, hotels, and media. As of last week, sectors with large upward revisions in net profit forecasts for this year included steel, hotels, leisure, and software, while those with large downward revisions included utilities, shipbuilding, and machinery.

Regarding KOSDAQ, it is expected that after a certain rise, the upward momentum will weaken due to fatigue and concerns over liquidity reduction. Kim Dong-ha, a researcher at Hanwha Investment & Securities, said, "Looking at the 12-month forward price-to-earnings ratio (PER) and price-to-book ratio (PBR) trends of KOSDAQ since 2005, it is currently at a historical high level (PER 17.6 times > +1 standard deviation, PBR 2.6 times > +2 standard deviations)," warning, "The recent rise is largely due to abundant liquidity rather than a valuation reassessment based on mid- to long-term growth potential, so downside support may not be strong."

He added, "Considering macro indicators, valuation, and supply and demand comprehensively, KOSDAQ in the second half is expected to show a box range market after a certain rebound, and rather than leading sectors, individual stocks expected to improve earnings are likely to show a favorable guerrilla warfare trend," emphasizing, "We should pay close attention to companies expected to improve earnings or generate growth momentum in the second half and next year."

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