Will the Concentration Phenomenon Ease with the Earnings Season?

Secondary Battery-Related Stocks Decline for Second Day
Expect Inflow to Earnings-Improved Stocks as Leading Sector Sees Outflow

Most secondary battery-related stocks, which showed high price volatility the previous day, are declining. In the early trading session on the 27th, the stock prices of cathode material companies such as Ecopro BM and POSCO Future M fell by about 4%. After plunging more than 10% immediately after the market opened, the decline was partially recovered as bargain buying entered.

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The entire domestic stock market showed signs of shaking following the price movements of secondary battery-related stocks the previous day. While confirming once again the side effects of excessive concentration, market experts predicted that the concentration phenomenon would somewhat ease based on past cases. However, they maintained a cautious stance regarding the price outlook for secondary battery-related stocks.

Concerns arising from the concentration phenomenon in secondary batteries have created conditions to look at other industries, raising expectations for change. Song Ju-yeon, a researcher at Daol Investment & Securities, explained, "Looking at past periods when the trading volume ratio relative to market capitalization surged, it was a point of pondering whether the existing market direction could be sustained," adding, "Although abstract, the surge in trading volume indicates that concerns about the market have condensed, and it can be seen as an expression of contemplating direction amid a confusing situation."

The total trading volume of the KOSPI and KOSDAQ markets reached 62.8 trillion won the previous day. This is the second-largest scale in history, following 64.8386 trillion won recorded on January 11, 2021, when liquidity flooded the market after the COVID-19 outbreak.

Na Jeong-hwan, a researcher at NH Investment & Securities, said, "Looking at past cases, many specific themes or stock groups that rapidly rose simply due to supply and demand ended in decline," and predicted, "In the short term, a market dominated by supply and demand may continue, but in the long term, as the concentration phenomenon in specific industries is resolved, price volatility will ease."

Examining the recent inflow of funds into the stock market, the number of active trading accounts is rapidly increasing, but the increase in deposits is slow. The deposit ratio relative to market capitalization in the KOSPI and KOSDAQ markets has decreased. The average deposit ratio per account is also on a declining trend. Kim Jong-young, a researcher at IBK Investment & Securities, judged, "The currently increasing account balances are small-scale funds, unlike in 2020-2021," adding, "If new funds do not increase significantly, it will be difficult for the performance superiority of concentrated stocks to continue."

Expectations for Shift of Interest to Earnings Improvement Stocks

After the upward trend of secondary battery-related stocks, which seemed likely to continue for a while, was halted, semiconductor, consumer, and financial sectors emerged as candidates for attention. Since the concentration phenomenon was excessive, it will take time for the market to stabilize, but the perception that the leading sectors have peaked is expected to spread. Heo Jae-hwan, a researcher at Eugene Investment & Securities, analyzed, "While preparing for the energy recharge process of leading sectors, interest is likely to shift to neglected sectors such as semiconductors, consumer, and finance."

As earnings announcements from major domestic listed companies continue, interest in companies that achieved profits exceeding market expectations has increased. There is a possibility that interest in earnings improvement stocks, which had been overshadowed by the secondary battery syndrome, will grow. Lee Jin-woo, a researcher at Meritz Securities, analyzed, "It is impossible to time the ongoing unusual concentration theme," but added, "I think it is right to take a breather now," further stating, "At least confidence in 'earnings' is necessary," and "There has been no significant change in earnings forecasts for secondary battery-related companies recently."

According to sectoral earnings forecasts released by domestic securities research centers, the range of changes in earnings forecasts for secondary battery-related stocks is not large. Expectations for earnings in other sectors excluding secondary batteries have risen compared to the end of last year. As lowered expectations have risen, there is room for stock prices to reflect this.

Among listed companies that announced second-quarter earnings by the 26th, 33 major companies formed market expectations for their earnings. The operating profit of these 33 companies exceeded market expectations by about 5.6%. The number of companies that announced profits exceeding market expectations reached 64%. Industries that led better-than-expected earnings included automobiles, industrial goods centered on machinery, steel, and banks. In the semiconductor sector, SK Hynix recorded earnings below market expectations, but Samsung Electronics' operating profit exceeded expectations.

Byun Jun-ho, a researcher at IBK Investment & Securities, explained, "Since entering the high-interest-rate era, concerns about earnings deterioration due to economic recession remained," adding, "As the economic slowdown is proceeding less severely than expected, corporate earnings also seem not worse than market concerns."

The previous day's stock market showed opposite price directions between Samsung Electronics and Hyundai Motor and POSCO Holdings and Ecopro. This suggests the possibility that funds exiting secondary battery-related stocks may flow into other sectors rather than the concentration phenomenon easing due to funds leaving the stock market.

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