Foreign Investors on Vacation Impact Stock Market... Should We Expect Sectors and Stocks with Steady Profit Growth?

[Asia Economy Reporter Lee Seon-ae] As the profit momentum of the domestic stock market is expected to weaken, the return of foreign investors has not materialized. With the domestic stock market continuing to fluctuate within a decline and a trading range, investment advice has been raised to focus on sectors and companies with strong expectations for sustained profit growth.

According to DB Financial Investment on the 31st, the KOSPI profit forecast, which had been rising thanks to strong earnings announcements, slightly declined for the first time in 10 weeks. This reflects opinions that significantly lowered SK Hynix's earnings outlook due to uncertain demand forecasts and the possibility of DRAM price declines in the fourth quarter. As the 12-month forward earnings per share (EPS) of the KOSPI fell due to the IT sector impact, attention is focused on sectors and stocks with strong expectations for continued profit growth.

Seol Tae-hyun, a researcher at DB Financial Investment, explained, "Sectors with a high proportion of companies expected to continue rising earnings forecasts in the second half include non-ferrous metals & wood, energy, and securities," adding, "These sectors have a high proportion of companies whose earnings forecasts have risen compared to early July and whose related uncertainties are decreasing." He also considered that the differences in estimates among institutions are not significant during the earnings forecast uptrend. Among companies expected to maintain strong earnings performance, those with weekly target price increases include Korea Zinc, S-Oil, and POSCO Chemical.

Meanwhile, it is expected that the influence of next year's operating profit forecasts on stock prices will increase as the domestic stock market moves into the second half of the year, surpassing this year's listed companies' operating profit forecasts. Park Seok-hyun, a researcher at KTB Investment & Securities, said, "Since the earnings forecast changes have not reversed into downward revisions and the outlook for corporate profit growth next year itself has not changed, there is no need to hastily adopt a pessimistic view," but emphasized, "It is necessary to be cautious that if the return to a positive trend centered on 2022 earnings forecasts is delayed, the weakening of profit momentum may continue."

The return of foreign investors has also not occurred. Foreign investors net sold 8.6 trillion won in the first quarter of this year and sold 8.9 trillion won in the second quarter. In the third quarter, net sales have reached 3.4 trillion won as of July. With the return of foreign investors' demand-driving power still delayed, the possibility of strengthening the KOSPI's upward momentum led by large-cap stocks is low. Accordingly, there is a growing voice emphasizing the need to focus on sectors where foreign investors are recording net purchases despite continued net selling in the domestic stock market. These sectors can be summarized as IT home appliances and chemicals (batteries), IT hardware, telecommunications services, and steel. Researcher Park said, "These sectors are broadly related to market interest rate stabilization (including China's reserve requirement ratio cuts)," adding, "During the period of domestic and international market interest rate stability, it is necessary to increase interest in these sectors as part of a rotation strategy." However, since a market interest rate rebound is expected around the August Jackson Hole meeting or the September Federal Open Market Committee (FOMC) meeting, the rotation trend is also expected to change. Sectors that may accompany relative performance improvement during a market interest rate rise phase include banks and automobiles, which are sensitive to economic cycles.

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