Delta Variant and Stock Market... Is Now the Buying Opportunity for Underperforming Themes and Sensitive Stocks?

[Asia Economy Reporter Lee Seon-ae] Major countries' stock indices continue their record-high rallies, but it is difficult to shake off the sense of unease. This is because both the economy and monetary policy are at a turning point without a clear direction. The trend of economic recovery remains unbroken, but the COVID-19 Delta variant acts as a concern for the stock market. The Delta variant significantly influences the determination of leading stocks and style strategies. However, investment advice suggests that a contrarian approach is needed at this time. It is recommended to find buying opportunities at low prices in economically sensitive stocks and reopening beneficiary themes that have continued relative underperformance.

Park Seok-jung, a researcher at Shinhan Financial Investment, stated in a report on the 2nd, "We judge that the Delta virus is not a factor that will change the trend of economic recovery." He added, "The main drivers of economic recovery are spreading from China and the United States to Europe and emerging markets, moving from goods consumption to production expansion, investment increase, and normalization of the service industry," and analyzed, "Although the speed of economic recovery from Europe and Asia due to the Delta virus may slow down, Europe, where the vaccination rate exceeds 50% and medical infrastructure is established, is expected to continue limited lockdowns and economic normalization."

Researcher Park said, "On the contrary, in the case of the United States and Europe, it is an environment that can justify fiscal and monetary expansion," and added, "Continuous monitoring of the Delta variant spread curve is necessary, but there seems to be no need to doubt the economic recovery trend."

Earlier, price adjustments occurred in Europe and some emerging countries, but considering the rebound since May, Researcher Park interpreted it as a technical correction level.

He analyzed, "The Delta virus has a significant impact on the determination of leading stocks and style strategies," and "The recent relative strength of growth and technology stocks reflects the decline in interest rates and the impaired reopening expectations due to the spread of the Delta virus."

Meanwhile, he proposed contrarian investment in the stock market. It is necessary to find buying opportunities at low prices in economically sensitive stocks and reopening beneficiary themes that have continued relative underperformance. Researcher Park emphasized, "From a fundamental approach, the price adjustment is excessive in preparation for the earnings improvement of sensitive and value stocks, and there seems to be sufficient room for favorable earnings of sensitive stocks to be reflected in stock prices."

He continued, "In economically sensitive stocks, we suggest an overweight strategy in industrials, banks, semiconductors, energy (green), which directly benefit from the investment cycle emphasized so far, and in reopening themes, leisure, airlines, and media sectors," adding, "In the domestic stock market, industrials (construction, machinery), leisure/entertainment, and airlines stand out as attractive."

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