The Fifth Bear Market... Invest Based on Earnings Outlook

[Asia Economy Reporter Ji Yeon-jin] The domestic stock market has become more volatile ahead of Russia's invasion of Ukraine and the upcoming U.S. Federal Open Market Committee (FOMC) meeting this month. As the market has entered the heart of a bear market and downward pressure remains, experts advise that strategies to protect returns are necessary.

According to the Korea Exchange on the 3rd, the KOSPI has been in a bear market for nine months, falling 18.2% from its peak of 3305.21 on July 6 last year to the previous day's closing price. The burden of valuation following a sharp rebound after COVID-19, the slowdown in the pace of global economic recovery, and the resulting weakening of earnings momentum have all hindered the market. The shift toward tightening policies in various countries has further dampened investor sentiment. Additionally, the war in Ukraine is increasing downward pressure, making it difficult to expect substantial returns through the stock market.

This market is the fifth bear market since the 21st century began. According to an analysis by DB Securities of listed companies with earnings consensus since 2000, companies whose earnings forecasts were revised upward during past bear markets consistently outperformed the KOSPI. In this bear market as well, companies with upwardly revised earnings forecasts posted a return of 0.2%. In particular, stocks with recently announced earnings forecasts higher than the previous average showed better returns than those without. Earnings momentum typically uses the average of analysts' forecasts over the past three months; if the average estimate over the past one month is higher than that of the past three months, it is interpreted as a greater likelihood of improved corporate earnings.

Seol Tae-hyun, a researcher at DB Securities, analyzed, "If earnings forecasts are rising while the standard deviation of earnings forecasts expands, it means that newly presented individual forecasts have been significantly revised upward compared to the previous average." He added, "Companies expected to sustain this upward trend in operating profit this year, calculated in this way, include GS, SD Biosensor, and Hyundai Glovis."

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