[Good Morning Stock Market] "Growth Stocks to Continue Strong Performance Due to Low Interest Rates"

[Asia Economy Reporter Eunmo Koo] Experts are advising to respond to the market with growth stocks. This is because interest rates, which are closely related to the direction of growth stocks, have been falling continuously. It is analyzed that the favorable environment for growth stocks will continue as the interest rate trend is unlikely to change for the time being.

◆Daejun Kim, Researcher at Korea Investment & Securities=The market is recommended to continue responding with growth stocks. This is because interest rates, which are closely related to the direction of growth stocks, have been falling continuously. Since the central bank's policy stance is unlikely to change for the time being, the favorable environment for growth stocks will continue. However, it is necessary to adjust the weighting within growth stocks. Considering the global calming of COVID-19, it is necessary to form an investment basket centered on IT and secondary batteries, which simultaneously hold earnings expectations and investment momentum, rather than COVID-19 beneficiaries such as healthcare and software.

Interest rates are a variable that must be closely watched to understand market sentiment. In particular, the U.S. interest rate, which leads global interest rates, is important, and among them, the real interest rate, which means the real value of money, is key. The recent decline in real interest rates is influenced more by expected inflation than nominal interest rates. Expected inflation tends to rise when the spread of COVID-19 subsides, and according to U.S. confirmed case statistics, expected inflation may rise slightly more. As a result, this can lead to a decline in real interest rates.

Looking at the style returns across Asian stock markets, growth stocks appear advantageous. The recent two-week performance of the Morgan Stanley Capital International (MSCI) Asia Index (excluding Japan) shows a strong momentum and growth style. If the macro environment does not change later, the styles showing strength are likely to continue leading the market. Like the U.S., real interest rates in Korea are generally declining. Although value and growth move together on expectations of economic normalization, growth is expected to have slightly stronger upward momentum.

The KOSPI is expected to move between 2300 and 2380 points next week. Except for U.S.-China diplomatic conflicts, there are no particular negative factors, so the index is expected to maintain a gradual upward trend. In particular, a favorable supply-demand environment, such as the inflow of individual investors' funds, will support the index. However, several events that could influence the market are scheduled, so it is necessary to check the results. On the 13th, the MSCI quarterly review and options expiration will take place, and on the 14th, companies' semi-annual reports will be due. It is necessary to examine newly added or removed stocks in the MSCI index, volatility in the derivatives market, and changes in second-quarter earnings.

◆Jaeseon Lee, Researcher at Hana Financial Investment=The view that growth stocks are the mid- to long-term leaders remains unchanged. However, if there is a possibility of a pause due to fatigue from the recent price rally, cyclical stocks with earnings improvement expectations should also be noted from a rotation perspective. The July Caixin PMI for China (52.8 points), announced this week, recorded the highest level in nine years, contributing to expectations of global demand recovery. Among cyclical stocks whose 12-month forward operating profit change rate turned positive over the past month, the sectors with relatively low gains this week were semiconductors and IT hardware.

Next week, the domestic stock market is expected to attempt to break new highs again. Despite the high valuation, it is necessary to consider that the current market environment offsets valuation burdens with earnings improvement expectations. The KOSPI's 12-month forward earnings per share (EPS) increased by 3.3% compared to the previous month, showing the fastest improvement speed since the beginning of the year. Also, with the dollar falling to around 92-93 points, the current inverse correlation between Asian stock markets and the dollar is at a historically high level.