Let's Buy Stocks That Can Form Themes... No Clear Direction for KOSPI Next Week

[Asia Economy Reporter Lee Seon-ae] Domestic stocks are expected to have difficulty showing a clear direction next week, making it necessary to respond with a 'stock-specific approach.' Trading stocks that can form themes is likely to be effective.

On the 24th, NH Investment & Securities projected the KOSPI index range for next week to be between 3200 and 3320 points. Researcher Kim Young-hwan of NH Investment & Securities stated, "The factors driving KOSPI's rise include eased concerns over a U.S. economic slowdown and positive second-quarter earnings forecasts, while the downside risks include the spread of COVID-19 and short-term declines in U.S. consumer sentiment." He added, "U.S. economic indicators are scheduled for release next week, and the stock market will fluctuate depending on the results of these indicators." He further noted, "Second-quarter earnings of Korean companies are expected to be favorable, but whether earnings will show a long-term upward trend through 2022 will influence stock prices."

Next week, indicators that provide insight into the direction of the U.S. economy will be released. On the 27th, the U.S. July Conference Board Consumer Confidence Index is scheduled, and on the 30th, U.S. June personal income and personal consumption data, as well as the July University of Michigan Consumer Sentiment Index, are set to be announced.

The U.S. Conference Board Consumer Confidence Index previously reached 127.3 points in June, marking the highest level since March 2020. U.S. personal income in May fell 2.0% compared to April, while personal consumption in May rose 0.9% from the previous month.

Researcher Kim expects the second-quarter earnings of Korean companies to be favorable. However, he observed that recently stock prices have tended not to move in line with earnings.

Regarding the linkage between earnings and stock prices, Kim analyzed, "This is due to concerns that the operating profit peaks of cyclical stocks, which have driven earnings improvements for Korean companies, occur in the second to third quarters, and that profits will follow a downward curve in the long term."

Accordingly, whether earnings will continue to grow long-term through 2022 beyond the surprise second-quarter results is expected to affect stock prices. Kim stated, "Industries expected to see significant operating profit improvements in 2022 compared to 2021 include utilities, media, software, healthcare, semiconductors, distribution, construction, IT home appliances, and automobiles, in that order."

His investment strategy recommends a stock-specific approach. He emphasized, "It is important to select stocks that can form themes in a cyclical rotation, focusing on industries with favorable long-term earnings prospects through 2022." The recommended sectors are internet and gaming, healthcare, and food and beverage.

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