[Weekly Market Outlook] "The Power of Earnings Surprises Will Continue in August"

"Companies Announcing August Earnings Also Expected to Continue Surprise Streak"

[Asia Economy Reporter Oh Ju-yeon] In the second quarter, domestic companies announced 'surprise earnings,' pushing the KOSPI beyond its previous high. The securities industry expects the earnings surprises to continue in August.

KB Securities projected the KOSPI range for this month to be 2150?2360. Although risks remain due to escalating conflicts between the US and China ahead of the US presidential election and noise surrounding stimulus package agreements, individual stock short-term trading strategies are still considered valid.

[Image source=Yonhap News]

According to KB Securities on the 2nd, operating profits for the second quarter this year, as of the 29th, recorded the highest level since 2010 (17.7% above consensus), showing an unprecedented surprise.

Researcher Lee Eun-taek said, "The second-quarter earnings surprise had a stronger impact on individual stocks, especially small and mid-cap stocks, rather than the overall index or large-cap stocks. Many individual stocks rose more than 20?30% in a short period due to earnings surprises, and companies announcing earnings in August are expected to continue this surprise streak. We believe there are still opportunities to earn significant short-term profits from individual stocks."

Lee added, "About 50% of the market capitalization has reported earnings, but in terms of the number of companies, it is still less than 10%. This means many small and mid-cap stocks will report earnings in August, so short-term trading strategies (day trading) are necessary in July and August."

By sector, chemicals, securities, and insurance are seen as having a high possibility of surprises. Small and mid-cap stocks include materials, healthcare, and IT components. It was analyzed that buying individual stocks after a surprise, especially when consensus is exceeded by more than 20%, has been a meaningful strategy.

NH Investment & Securities identified secondary batteries, software, semiconductors, automobiles, telecommunications, and food and beverage sectors as areas of interest next week.

Researcher Kim Young-hwan of NH Investment & Securities said, "There may be a shift in market interest from growth stocks with high valuation burdens to value stocks. Value stocks with defensive characteristics in the economy may also emerge as alternatives amid uncertain situations."

Kim recommended, "Among growth stocks, a concentrated holding strategy in secondary batteries and software is advised, and among value stocks, trading strategies in sectors with low valuation burdens such as telecommunications and food and beverage are recommended."

Researcher Han Dae-hoon of SK Securities said, "We maintain the existing view that the investment attractiveness of large-cap stocks including semiconductors and electrical electronics, as well as cyclical stocks such as transportation equipment and machinery, is high in the short term."

Han added, "This is because the investment attractiveness of cyclical stocks is higher due to cautious sentiment following the US Big 4 tech companies' antitrust hearings, profit-taking sales after the tech sector's short-term surge, and expectations for economic activity resumption as the spread of the novel coronavirus (COVID-19) subsides."