Fear of 'Peak Out'... Focus on Foreigners' Over-sold Stocks with Increased Profits

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[Asia Economy Reporter Ji Yeon-jin] As concerns about a 'peak-out' (reaching a peak and then declining) spread in the domestic stock market, investor sentiment is weakening. Although the profits of domestic companies improved significantly due to the base effect of COVID-19 until the first half of this year, given the concerns about a reverse base effect going forward, it is advised that stocks recently experiencing concentrated foreign selling among companies expected to improve profits could actually present a rebound opportunity.

According to the financial investment industry on the 8th, the operating profit growth rates of listed domestic companies reached 119% and 83% in the first and second quarters, respectively. However, the operating profit growth rate for the third quarter is expected to drop sharply to 27%. The growth rate for next year is forecasted to be around 10%, which is considered almost no profit growth since the annual estimates are set high.

In particular, cyclical sectors that showed remarkable profit improvement this year, such as energy, chemicals, non-ferrous metals, steel, and shipping, are expected to experience negative growth next year, and the automobile sector is projected to grow by only about 9%. However, the semiconductor sector is expected to increase by 21%, media and entertainment by 51%, aerospace and defense by 18%, pharmaceutical and bio by 14%, and technology hardware and electrical equipment (including secondary batteries) by 20%. The airline industry is also expected to return to profitability, indicating a differentiation in corporate profits.

The slowdown in profit growth is a global phenomenon. In the U.S. as well, concerns about economic slowdown have highlighted recent stock market weakness. However, a concentration phenomenon showing strength centered on companies with positive factors is emerging. Lee Kyung-soo, a researcher at Hana Financial Investment, said, "The number of stocks with upward revisions in estimates for the third quarter and next year is rapidly decreasing," adding, "Since cyclical sectors, IT, and automobiles are experiencing concerns about profit peaks, it is time to hedge market growth."

As fewer companies show strong growth, investment demand concentrates on companies with significant profit improvements, meaning investors should seek the best among companies with high profit momentum. Additionally, for stocks with concentrated foreign selling, excessive investor anxiety has caused price imbalances to worsen, so when profit improvements are confirmed, these stocks can rebound more sharply. The researcher explained, "The factor of being in the top one-month change in profit momentum alone shows good performance, but when mixed with a certain proportion of the factor of being in the top one-month net foreign selling, the returns increase further," adding, "There is statistical evidence that stocks with upward profit revisions amid heavy foreign selling have stronger price rebound power than simply stocks with upward profit revisions."

According to an analysis by Hana Financial Investment of stocks with upward profit forecasts over the past month that also experienced concentrated foreign selling, SK Chemical, Tesna, LX Semicon, Zinus, KMw, SFA, Hyundai Elevator, Samyang Foods, Hana Tour, GS, LS, YG Entertainment, LG Innotek, and RFHIC ranked among the top.

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