Waiting for the 'Bear Market Rally' While Searching for Jinju

[Asia Economy Reporter Hwang Junho] Following the giant step taken by the United States on the 13th, South Korea's big step decision has increased the likelihood of entering a 'bear market rally.' As inflation firefighters embark on a full-scale effort to control inflation, analyses are emerging that a 'brief rebound within a bear market' may occur due to the resolution of uncertainties. Stocks benefiting from the bear market rally are those whose prices have fallen significantly relative to their earnings.

According to the Korea Exchange on the 14th, the day before, the Bank of Korea took the unprecedented big step (a 0.50% base rate hike) through the Monetary Policy Committee, but with inflation uncertainties somewhat easing, the stock market closed higher. However, overnight, the U.S. Consumer Price Index hit a record high, and with options expiration coinciding, the market opened lower that day.

Following the U.S., which greatly influences the direction of the Korean stock market, South Korea also raised its base interest rate sharply, raising expectations in the securities industry for a bear market rally. If commodity prices, including international oil prices that have fueled inflation, fall, a full-fledged bear market rally is expected to follow.

Labor Gil, a researcher at Shinhan Financial Investment, stated, "Since 1970, the U.S. stock market has experienced a total of seven bear markets and sixteen bear market rallies," adding, "During the sixteen bear market rallies, the U.S. S&P 500 index rose by an average of 12.7%."

Lee Euntaek, a researcher at KB Securities, analyzed, "If a bear market appears in the domestic stock market, a rebound of about 10-15% is expected," and "If a bear market rally occurs, it will likely start with a decline in commodity prices." The factor of weakening commodity demand itself is negative. However, there is a possibility of a short-term rally due to the drop from soaring prices, according to his analysis.

The beneficiaries of the bear market rally are expected to be stocks that have been excessively depressed in investment sentiment due to inflation and are undervalued even considering reduced earnings.

For example, stocks like NCSoft can be cited. NCSoft's profit margin forecast for this year is 24% compared to the previous year, while the 10-year low was about 16.3%. For 24% to fall to 16.3%, this year's operating profit forecast of 665.4 billion won would need to drop to about 453.3 billion won. The 453.3 billion won level is similar to the operating profit of 479 billion won in 2019. In 2019, NCSoft's stock price was 430,500 won, whereas the current stock price is 363,500 won, indicating undervaluation.

KB Securities recommended NAVER, LG Household & Health Care, F&F, and NHN Korea Cyber Payment in addition to NCSoft using this method.

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