[Weekly Market Outlook] Sector-Differentiated Market... Focus on Stocks with High Earnings Improvement Expectations

Samsung Electronics to Announce Preliminary Earnings on 7th
High Expectations for Sectors with Policy Momentum and Earnings Improvement
Focus on Healthcare, Telecommunications, Machinery, IT Software
Semiconductors, Equipment, Securities Show Concurrent Q2 and Q3 Operating Profit Estimate Improvements

[Asia Economy Reporter Oh Ju-yeon] In the first week of July (6th to 10th), the domestic stock market is expected to focus on the policy momentum such as the Korean New Deal policy and the Q2 earnings announcement schedule starting with Samsung Electronics' preliminary earnings. In particular, securities analysts say that in a phase where earnings estimates for the domestic stock market are being revised downward, the stock price premium of sectors with upwardly revised earnings estimates tends to increase, showing a differentiated flow by sector.

On the 5th, NH Investment & Securities presented the weekly KOSPI expected band at 2080 to 2160 points. They explained that in the short term, it is necessary to focus on differentiation by stock in a situation where the index direction is unclear.

Researcher Kim Young-hwan said, "The stock market is likely to show a pattern of fluctuating within a narrow range without a clear direction in the short term," adding, "This is because two variables, the improvement of U.S. economic indicators and the resurgence of COVID-19, are conflicting." He emphasized that in such a situation, an alpha strategy focusing on stock differentiation is important.

He particularly pointed out the Korean government's policy events in early July. Researcher Kim said, "The third supplementary budget (추경) is expected to boost domestic consumption from July to September, and the Korean New Deal policy is expected to stimulate valuation rerating of stocks in the digital and green sectors." Along with this, he named food and beverage, distribution (convenience stores, home appliance distribution), software, and renewable energy as sectors of interest.

On the 29th, the KOSPI index opened at 2105.54, down 29.11 points (1.36%) from the previous trading day. Dealers are seen busy with their work in the dealing room of Hana Bank in Jung-gu, Seoul. In the foreign exchange market, the won-dollar exchange rate started at 1205.0 won, up 4.4 won from the previous trading day. Photo by Kim Hyun-min kimhyun81@

Attention is also drawn to Samsung Electronics' preliminary earnings announcement scheduled for the 7th. It is explained that it is necessary to focus not only on policy momentum but also on sectors with high expectations for future earnings improvement. According to SK Securities, the KOSPI net profit forecast, which was expected to reach 125 trillion won this year, has fallen to 91.4 trillion won, and the Q2 forecast has also been revised downward from 24.1 trillion won to 20.5 trillion won. Compared to last year, the earnings of KOSPI-listed companies in Q2 are expected to decrease by 16.9%. Since expectations for the earnings season are very low, it was diagnosed that this earnings season needs to be examined together with policy and macroeconomic situations.

Han Dae-hoon, a researcher at SK Securities, said, "Sectors with policy momentum and high expectations for future earnings improvement are expected to attract more attention in this earnings season," adding, "Healthcare, telecommunications, machinery, and IT software sectors fall into this category."

Researcher Han added, "Not only the IT software and healthcare sectors, which are currently playing a leading role, but also the telecommunications and machinery sectors, whose Q2 and Q3 earnings estimates have been revised upward along with policy momentum, are worth paying attention to." He continued, "Unlike in the past, the current stock market rebound is largely driven by individual funds," and said, "If policy momentum supports the expectation of earnings improvement, the concentration on these sectors is expected to intensify."

Hana Financial Investment also emphasized the need to focus on sectors with upwardly revised earnings estimates.

Lee Jae-man, a researcher at Hana Financial Investment, analyzed, "In phases where the overall earnings estimates of the domestic stock market were revised downward, such as from January to November 2014 and from November 2018 to November 2019, the cumulative stock returns of sectors with upwardly revised earnings estimates during those periods were 12% and 6%, respectively, which were significantly higher than the -13% and -4% of sectors with downwardly revised earnings estimates."

Researcher Lee explained, "In situations like now, it is important to pay attention to sectors leading earnings changes," adding, "In the domestic stock market, semiconductors and equipment, software, and securities sectors have recently started to show simultaneous improvements in operating profit estimates for Q2 and Q3."