Faster Markets, Slower Profits, Changing Industries... "Focus on 1-Month Consensus Over 3-Month"

[Asia Economy Reporter Lee Seon-ae] As the KOSPI hits historic highs, market movements have accelerated, but companies' upward revisions of earnings forecasts are not as strong as at the beginning of the year. Moreover, concerns over tapering (asset purchase reduction) are limiting long-term investments, causing leading sectors to change rapidly day by day. Analysts suggest that it is better to refer to the 1-month consensus rather than the 3-month consensus for corporate earnings.

According to Hanwha Investment & Securities Research Center on the 23rd, among the 'KOSPI 100' stocks, those whose recent 1-month consensus (net profit) is higher than the 3-month consensus include Korean Air, Hyundai Heavy Industries, LG Electronics, Lotte Shopping, S-Oil, Hyundai Engineering & Construction, Kumho Petrochemical, Lotte Chemical, CJ CheilJedang, and Samsung Heavy Industries, in that order. Following them are Shinsegae, LG Chem, Woori Financial Group, LG Innotek, KT, POSCO, Hyundai Steel, Hanon Systems, Hyundai Glovis, and LG Display, all ranked within the top 20. Within the top 30 are SK Hynix, Samsung Securities, BNK Financial Group, SK Telecom, Samsung Electronics, Hankook Tire & Technology, LG Uplus, AmoreG, Hana Financial Group, and Cheil Worldwide.

During the 2008 financial crisis, there was about a six-month lag between the KOSPI's bottom and the 12-month forward earnings per share (EPS) bottom. It took half a year for corporate earnings indicators to show a turning point. Given that it was the worst crisis in the past 100 years, companies' responsiveness and recovery were slow. After the COVID-19 shock, the lag between the index bottom and EPS bottom shortened to about three months, half the duration compared to the financial crisis. This is attributed to the rapid shock as well as improved corporate fundamentals through experiences with the financial crisis, trade disputes, and other issues.

Hanwha Investment & Securities analyst Ahn Hyun-guk emphasized, "As the lag between finance and earnings shortens and the industry cycle becomes shorter, it is important to note that corporate earnings indicators should be viewed on a faster basis due to the accelerated pace." Corporate earnings consensus is calculated as the average of individual estimates announced by securities firms over the past three months. Because it is an average, recently announced values tend to be somewhat diluted. Even if the sample size decreases, it is necessary to narrow the period from three months to one month. Stocks whose 1-month consensus at the same point in time is higher than the 3-month consensus have shown improved stock returns compared to those that do not."

Analyst Ahn added, "When dividing the KOSPI 100 constituent stocks into groups whose 1-month consensus was higher than the 3-month consensus at the end of the quarter and those whose 1-month consensus was not higher (with at least two individual estimates), and calculating the average return difference for one month after the reference point (the first month of the earnings season), relative returns have improved since the second half of last year. As the lag in earnings shortens and the market moves quickly based on fast numbers, attention should be paid to stocks with a high recent 1-month consensus at the end of the quarter."

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