"‘War Ankle’ April KOSPI Lacks Momentum, 'Exploring Bottom Around 2500'... Sectors and Stocks Over Index"

[Asia Economy Reporters Lee Seon-ae and Lee Myung-hwan] The stock market in April is expected to show sluggish movement, hindered by the variable of the Ukraine war and concerns over declining corporate profits despite the easing of uncertainty in U.S. monetary policy. With a decline in profit margins inevitable, the upper limit of the KOSPI is expected to be controlled, leading to a consensus that investors should abandon expectations for the index and instead adopt selective responses to sectors and individual stocks.

According to the financial investment industry on the 29th, the lowest expected band for the KOSPI in April is 2570. Although it is expected to show firmer downside rigidity compared to March, there is a possibility that the 2600 level could break down if affected by external negative factors. Daol Investment & Securities, which conservatively forecasts the KOSPI range for April to be between 2570 and 2780, cited the possibility of further adjustments to corporate profit forecasts as a variable.

Researcher Cho Byung-hyun of Daol Investment & Securities stated, "Given the downward revision of macroeconomic outlooks and the possibility of further adjustments to profit forecasts, it is difficult to expect confirmation of a fundamental recovery." He emphasized the importance of noting that April is the period just before companies announce their first-quarter earnings. After the Q1 earnings season, market-wide annual profit forecasts are adjusted, and historically, the adjustment range tends to be larger than usual. Cho added, "Currently, the operating profit cycle is expected to be in a bottom-searching phase until the third quarter, and there is no strong confirmation yet to confidently expect a sharp rise in profit momentum."

Shinhan Investment Corp. also expressed concerns that the KOSPI's profit margin will continue to decline for the time being. Researcher Noh Dong-gil of Shinhan Investment said, "The decline in profit margins lowers expectations for index recovery," and analyzed, "It is inevitable that earnings estimates will be revised downward due to ongoing energy instability until the Russia-Ukraine war ends." However, with the uncertainty in monetary policy resolved, the domestic stock market is expected to show downside rigidity, predicting the KOSPI's lower bound at 2600. The upper bound was also positively suggested at 2850. Noh emphasized, "The adjustment of perspectives between the Federal Reserve (Fed) and investors regarding interest rate hikes was concluded around the March Federal Open Market Committee (FOMC), so the impact of U.S. rate hikes is not significant," adding, "While monetary policy normalization may limit the upper bound of the index, it is unlikely to be a factor that expands stock market corrections."

Hana Financial Investment also forecasted the KOSPI's upper bound at 2850, expressing a positive view that the extreme reduction in stock weight that persisted throughout Q1 will come to an end. Researcher Lee Jae-man of Hana Financial Investment analyzed, "Although the sharp rise in U.S. market interest rates still burdens the stock market, funds are reflowing into U.S. long-term Treasury ETFs, while the buying intensity of crude oil and the dollar in the futures market has eased," adding, "Since the Fed's tightening policy has begun, attention should now be paid to whether the global economic cycle improves." However, considering the prolonged Russian invasion of Ukraine, which inevitably affects domestic corporate profit trends, the lower bound was left open at 2580.

Korea Asset Investment Securities took a somewhat bold stance by suggesting the KOSPI's upper bound in April could reach 3000. However, the lower bound was set at the 2600 level, indicating a wide range. They also emphasized that while it may be difficult to approach 3000 immediately in April, reaching it during Q2 does not seem impossible. The optimistic view is based on the judgment that interest rate hikes will have little impact on the stock market. Researcher Ahn Jin-cheol of Korea Asset Investment Securities stated, "A big step (+50bp) rate hike is possible in May, but the impact of rate hikes on the stock market remains neutral," emphasizing, "Concerns and expectations about rising rates have already been sufficiently reflected in the market." He added, "In Q2, various uncertainties are expected to be resolved one by one, so the stock market environment should not be bad," and noted, "The monthly average of the KOSPI could bottom out at 2688 in March, marking the end of a continuous decline since June last year."

The securities industry unanimously agreed that since the KOSPI index is expected to remain in a box range below 2900 in April with sectoral differentiation based on earnings momentum, investors should develop strategies focusing on sectors and stocks capable of defending profits rather than betting on the index. Researcher Noh advised, "In a situation where sector and stock selection difficulty has increased, a strategy focusing on sectors that can defend profit margins and overlooked growth stocks is effective." Researcher Cho added, "Based on current estimates, shipbuilding and hotel & leisure industries, which are expected to turn profitable this year and show steep profit growth next year, stand out the most," and "It is also necessary to pay attention to IT sector sub-industries that have shown steady profit forecast improvements despite weak stock performance." Hana Financial Investment and Korea Asset Investment Securities advised paying attention to oversold growth stocks with favorable earnings trends and foreign net buying stocks within the box range strategy, respectively.

Meanwhile, as of the fifth week of March, undervalued sectors (those with upward revisions in profit forecasts relative to the KOSPI but low stock price increases) included semiconductors and transportation, while overvalued sectors (those with downward revisions in profit forecasts relative to the KOSPI but high stock price increases) included construction & architecture, steel & non-ferrous metals, and healthcare. Based on 231 companies with consensus, sectors with large upward revisions in operating profit forecasts this year included transportation, healthcare, and energy, while sectors with large downward revisions included securities, hotel & leisure, and chemicals. For Q1, sectors with large upward revisions in operating profit forecasts included energy, transportation, and software, while those with large downward revisions included display, shipbuilding, and chemicals.

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