Survival Investment Strategies in the Reverse Financial Market Phase... Compressing the Basket with Low PER and Earnings Stocks

[Asia Economy Reporter Lee Seon-ae] Investment advice has emerged suggesting that to survive in a reverse financial market phase, attention should be paid to low price-to-earnings ratio (PER) stocks and small-to-mid cap stocks with solid earnings.

On the 8th, Samsung Securities evaluated that the current market has entered a reverse financial market phase by applying the stock market four seasons concept proposed by Japanese analyst Kunio Uragami. This is due to the full-scale interest rate hikes and ongoing concerns about companies' earnings peaking out amid inflation.

Despite Federal Reserve Chair Jerome Powell's explanation that a giant step (a 75 basis point increase in the benchmark interest rate) is not being actively considered, market reactions remain cold. Investors doubt whether tightening can occur without a recession. Additionally, geopolitical uncertainties continue around Russia's Victory Day on the 9th.

Shin Seung-jin, a researcher at Samsung Securities, said, "Typically, in a reverse financial market phase, as interest rates rise and market liquidity shrinks, investors closely examine companies' earnings and cash flows, so low PER companies and small-to-mid cap stocks with solid earnings tend to perform well. The recent consecutive postponements and withdrawals of IPOs can be considered in this context, and this applies equally to the stock market."

High-valuation companies that have enjoyed growth premiums are expected to face sluggish performance if their earnings are not adequately supported. The 2020-2021 period was a market driven by massive liquidity released due to COVID-19, which led to asset price increases. Now, the historically high market liquidity is entering a withdrawal phase.

Researcher Shin emphasized, "Investors whose portfolios have underperformed this year need to check whether their holdings have fallen into a valuation trap. It is worth recalling Warren Buffett's adage, 'Only when the tide goes out do you discover who’s been swimming naked.'"

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