"Widespread Concerns Over Earnings Peak-Out" Future Profits Matter...Careful Stock Selection Needed

[Asia Economy Reporter Lee Seon-ae] As the sustainability of future profits becomes more important than the absolute value of earnings, the difficulty of investment is increasing. Since this is a time when interest rate hikes are in full swing and concerns about corporate earnings peak-out are widespread, there is continuous advice emphasizing the importance of careful stock selection.

Samsung Securities analyzed in a report on the 2nd that the current global market is passing through the period of liquidity and earnings markets in 2020-2021 and is now going through a reverse financial market phase in 2022.

Shin Seung-jin, a researcher at Samsung Securities, said, "Looking at the first quarter earnings season as a mid-term check, the first quarter report cards of our companies are relatively good, but due to concerns about uncertainty in future profits, stock price trends vary widely by stock," adding, "As the sustainability of profits becomes more important, investment difficulty is high, and at a time when concerns about earnings peak-out are widespread, stock selection must be cautious." He continued, "The portfolio should be concentrated on companies that have no valuation burden, are undervalued, and whose future earnings can improve."

Investors' attention will focus on the upcoming U.S. Federal Open Market Committee (FOMC) meeting scheduled for this week. Opinions are divided on whether the U.S. interest rate hike and the Federal Reserve's balance sheet reduction will be perceived as resolving uncertainty or as a signal of tightening. The market's direction will ultimately be decided after the May FOMC.

Researcher Shin said, "Although the KOSPI rebounded successfully due to the dollar index weakening on the 29th of last month and net buying by foreign investors, macro variables and geopolitical issues remain uncertain," pointing out, "This is because inflationary pressure continues due to the prolonged Russia situation, and although the 2600 level has solid downside support, the reason a V-shaped rebound is difficult is also because of this."

Samsung Securities newly included Samsung C&T, Samsung SDS, and SK Biopharm (326030) as weekly recommended stocks this week. Researcher Shin explained, "We adjusted the portfolio focusing on companies that were long-term neglected but have potential for future earnings growth through this first quarter earnings announcement," adding, "Within secondary batteries, we replaced SK Innovation with Samsung SDI. Although the first quarter earnings surprise due to strong profits in the refining sector and the still undervalued battery value are positive, concerns about delayed recovery of battery profitability have been raised."

Meanwhile, various events are scheduled domestically and internationally. The FOMC will decide interest rates on the 5th (Korean time). On the 10th, the inauguration ceremony of the 20th President of the Republic of Korea will be held. Other scheduled events include the options expiration on the 11th, the Korea-U.S. summit on the 21st, and the release of the U.S. FOMC May minutes on the 26th.

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